Stamp Duty on rent - shared ownership

Twiglet12

Hi all. We've received notification that we're ready for exchange on a flat that we're purchasing. We're buying a shared ownership property (40%). We are paying SDLT on the 40% share which we had expected and budgeted for. However, our completion statement includes an £888 SDLT on rent 'as the rent is quite high'.

This isn't something we had heard about before now and I can't find much about it on the weber one the HMRC information which is fairly confusing.

My main question is; paying SDLT on only the 40% share now means we will have to pay further tax when we staircase to over 80%. Is the amount that we pay on the rent now taken account of in this? The HMRC website examples don't discuss tax on rent at all. It would seem a little unfair if we're essentially taxed twice (i.e. On the rent that we're paying for the share we don't own, and then again on that share when we purchase it).

G_M

https://www.gov.uk/stamp-duty-land-tax-the-basics

Twiglet12

As I said, I've read this several times, and it isn't clear on the specific question I've highlighted and provides little other information about tax on rent. It doesn't help that the rental SDLT calculator page, which it says includes definitions for the terminology, doesn't exist when you click on the link.

Twiglet12

Further, HMRC states "A nominal rent is not chargeable consideration for SDLT purposes if it is expressed as 1. A peppercorn or similar".

Our lease also states that "Stamp Duty Land Tax to be charged in accordance with said paragraph 4 of Schedule 9 of the Finance Act 2003 by reference to the Initial Market Value and the Minimum Rent"

The lease defines "Minimum Rent" as "means One peppercorn per month (if demanded)".

I will of course query this with solicitor but can't do this until Monday, but this sounds like we're being incorrectly charged, as SDLT should be calculated on Minimum Rent, not the Specified Rent that we are paying on the unbought share.

TheCyclingProgrammer

Definitely raise this with them. They are solicitors, not accountants or tax experts so I suppose it's quite possible they've got this wrong, though you'd think they wouldn't.

davidmcn

Twiglet12 wrote: »

Further, HMRC states "A nominal rent is not chargeable consideration for SDLT purposes if it is expressed as 1. A peppercorn or similar".

Our lease also states that "Stamp Duty Land Tax to be charged in accordance with said paragraph 4 of Schedule 9 of the Finance Act 2003 by reference to the Initial Market Value and the Minimum Rent"

The lease defines "Minimum Rent" as "means One peppercorn per month (if demanded)".

I will of course query this with solicitor but can't do this until Monday, but this sounds like we're being incorrectly charged, as SDLT should be calculated on Minimum Rent, not the Specified Rent that we are paying on the unbought share.

But what's the rent and the duration of the lease for the unbought share? The SDLT on that will be separately calculated - might be where the confusion lies.

Derwent

SDLT applies on rent where the cumulative amount of rent payable over the term of the lease would exceed the SDLT threshold of £125,000.

For example, if you have a 30 year lease paying £500 a month rent then the cumulative rent payable would be £180,000 (£6k per year x 30 years). In this example you would pay SDLT on the difference between the rent and the threshold, so £55,000 would be the basis of calculation.

You'd pay SDLT of £550, equating to 1% of the rent payable over the SDLT threshold.

Twiglet12

In which case there's something very wrong because the lease is 125 years and the rent is around 7.5k per year on the 60% we don't own, we couldn't possibly pay 1% of that figure.

My understanding is that the SDLT applies to the rent paid by a leaseholder of a property, which when they own 100% is a peppercorn. Surely it shouldn't apply on the rent paid under a sub-lease on the unowned share. Again, if we were then to staircase we're effectively paying some SDLT twice?

davidmcn

Twiglet12 wrote: »

In which case there's something very wrong because the lease is 125 years and the rent is around 7.5k per year on the 60% we don't own, we couldn't possibly pay 1% of that figure.

No, it's based on the Net Present Value, which is a fairly complex formula - there's an HMRC calculator here which will give you an idea, though I think the rates may not reflect the latest changes. Using that calculator I make it £863 SDLT for a 125 year residential lease at £7500 rent.

My understanding is that the SDLT applies to the rent paid by a leaseholder of a property, which when they own 100% is a peppercorn

If the rent is a peppercorn then yes.

Surely it shouldn't apply on the rent paid under a sub-lease on the unowned share.

SDLT applies to every leasehold interest, whether it's a head lease, a sub-lease, a sub-sub-lease, etc.

Again, if we were then to staircase we're effectively paying some SDLT twice?

Yes, in the same way that if you moved house you'd have to pay SDLT again. There may however be some relief for shared ownership properties which I don't know about.

Twiglet12

davidmcn wrote: »

No, it's based on the Net Present Value, which is a fairly complex formula - there's an HMRC calculator here which will give you an idea, though I think the rates may not reflect the latest changes. Using that calculator I make it £863 SDLT for a 125 year residential lease at £7500 rent.

Thank you! All the links to the calculator from the HMRC website are broken which was part of the frustration.

That calculator is for the pre-December 2014 values though so is giving us the incorrect figure for tax on the premium. It's a bit of a nightmare, we were initially advised the SDLT liability was only 1.1k by both solicitor and selling agent and it's looking like it will be around 2.5k and we're struggling to check if it's correct. I'll also try calling HMRC.

This extra SDLT seemingly isn't disclosed on any shared ownership development marketing or paperwork, only the figure on the premium.

Twiglet12

In the HMRC SDLT rates and allowances document (not allowed to post link as I'm new!) there is NO information about residential leasehold rates post December 2014?