Stamp Duty - Staircasing - Shared Ownership

AT_London

Dear all,
Happy New Year to everybody! I hope you had a moneysaving and most importantly joyful break!

Hopefully some Real Estate and more particularly Shared Ownership experts here will be able to help as the HMRC website is not really helpful or the rule is a little too complex.

We are in a lucky position to own 40% of a flat purchased a couple of years ago through Shared Onwership. We are now considering to buy more equity/shares (what the Housing association call staircasing) and facing a "good" dilemma. Whilst the process itself seems quite straightforward, I have doubts regarding the amount of Stamp Duty we would need to pay since the introduction of the new rule in December 2014, if I remember correctly.

Depending on the valuation of the flat we would be able to staircase to 100% outright (Scenario 1) or in several steps - 40% additional now and remaining 20% in 1-2 years (Scenario 2).

The flat was worth 438k at the moment of purchase (100%), and we bought 40% (175k) - so paid a small amount of Stamp Duty already.

Scenario 1:
If the flat is the worth 600k now, and if we were to staircase to 100%, what would be the Stamp Duty to pay?

Scenario 2:
If the flat is worth 600k now, and we were to staircase to 80% (from 40% to 80%), my understanding is that we won't pay any Stamp Duty on the second transaction. We would only pay Stamp Duty on the transaction that brings us over 80% of ownership. Then if the flat is still worth 600k in one year, and we decide to staircase again (from 80% to 100%), what would be the amount that we would need to pay to HMRC?

Just trying to optimize our finances as we are not even sure to be able to buy the property outright (London prices).

Thanks in advance for your help,
AT London

booksurr

assuming you did not make a market value election at the date of the initial purchase - your comment that you paid a "little" sdlt implies not then....

scenario 1: as a single leap transaction
original initial pmt = 175, next (&final) pmt = 600 increment paid 600-175 = 425
SDLT
125,000 @ 0%
125,001 to 250,000 = 125,000 @ 2% = 2,500
250,001 to 600,000 = 350,000 @ 5% =17,500
total 20,000
apportionment 20,000 x 425/600 = 14,167
SDLT payable 14,167

scenario 2: same principle but only payable on the final amount paid over 480,000 (80%) so the apportionment would be 120/600 x 20,000 = 4,000

AT_London

Thanks Booksurr for your detailed feedback - very much appreciated.

So overall and purely from the financial perspective, we are better off with the second solution (straircasing in steps) provided that the value of the property doesn't change.

I am surprised by the difference in SDLT paid between Scenario #1 and #2 though (14k vs 4k). Which means we can save 10k just by manipulating the process...

Thanks for your help,
AT

AT_London

Spot on... thanks again. Indeed, we put all we had in cash into the first 40% stake as a deposit.

Cheers, AT