Stamp Duty on a Shared Ownership property

henrygregory

Hi there,
I would be really grateful if someone could explain to me how the Stamp Duty charge works on Shared Ownership properties?

I have reserved a Shared Ownership property priced at £340k. I would like to purchase 75% of this, which is 255k.

Some advisers have told me that I would need to pay the full 100% Stamp Duty on 340k, whist others have said, I would just pay the Stamp Duty on the 255k share I am purchasing, and then would pay more stamp duty again when I purchase more equity in the property in the future.

Can anyone advise as to the options available and what might be best for me?

Pixie5740

Those are your two options. You either pay SDLT on the full £340k and no further SDLT if/when you staircase or you pay SDLT on the £255k and further SDLT when you staircase in the future. Which option is best for you? It depends. Are you planning to eventually staircase to 100% ownership of the lease?

Paying SDLT on the full £340k

SDLT = £7,000

Pros
You don't have to pay any stamp duty when you staircase.

Cons
The additional cost can be considerable. Under the other option 'Paying in Stages' the stamp duty you could pay less.

You could invest the money saved by buying more of a share in the property.

Paying the SDLT in stages

It depends if you are buying a new build or not. If you are buying a new build the SDLT isn't just calculated on the consideration you pay for your share, you will also need to pay SDLT on the the 'net present value' of the rent you pay to the housing association over the full term of your lease.

1) Consideration on your share: £2,750

2) Net Present Value of rent: This is where it gets a bit more tricky. You pay 1% SDLT above £125,000 of the net present value of the rent you pay to the housing association over the full length of your lease.

If you are not buying a new build then the SDLT would just be based on the £255k.

Thankfully HMRC have a SDLT calculator that you can use.

00ec25

the guidance is relatively straightforward as you have to make a one time only choice between 2 options and then live with that for as long as you own:
https://www.gov.uk/guidance/sdlt-shared-ownership-property


A) market value election: pay SDLT on the full (ie100%) price at point of purchase of your first share. That would cost £7,000 on 340k but you then never pay SDLT again when you purchase any further shares (staircase)

staircase election: pay SDLT on the price you pay for the first share £2,750 on 255K and then pay SDLT again once you own more than 80% of the total property. Your risk is by the time you get to the 80% market the price will have risen so much that the total you pay in such staircase steps would be more than the once only payment under option A)

there is no simple way to decide if A) or will be better for you given you are going straight in at 75%, unless you know for sure you are never, ever, going to buy any more of the property and so breach the 80% threshold.

00ec25

Pixie5740 wrote: »

Thankfully HMRC have a SDLT calculator that you can use.

note however that the calculator cannot be used for staircase (option b) calculations because it cannot cope with the apportionment aspect

henrygregory

Pixie5740 wrote: »

Those are your two options. You either pay SDLT on the full £340k and no further SDLT if/when you staircase or you pay SDLT on the £255k and further SDLT when you staircase in the future. Which option is best for you? It depends. Are you planning to eventually staircase to 100% ownership of the lease?

Paying SDLT on the full £340k

SDLT = £7,000

Pros
You don't have to pay any stamp duty when you staircase.

Cons
The additional cost can be considerable. Under the other option 'Paying in Stages' the stamp duty you could pay less.

You could invest the money saved by buying more of a share in the property.

Paying the SDLT in stages

It depends if you are buying a new build or not. If you are buying a new build the SDLT isn't just calculated on the consideration you pay for your share, you will also need to pay SDLT on the the 'net present value' of the rent you pay to the housing association over the full term of your lease.

1) Consideration on your share: £2,750

2) Net Present Value of rent: This is where it gets a bit more tricky. You pay 1% SDLT above £125,000 of the net present value of the rent you pay to the housing association over the full length of your lease.

If you are not buying a new build then the SDLT would just be based on the £255k.

Thankfully HMRC have a SDLT calculator that you can use.

Thank you for such a comprehensive response. And thanks to everyone else. Very helpful.

I would be looking to staircase to the full 100% available and own the freehold. The Housing Association tell me that we would have to wait just 12 months before we could purchase the remaining equity. - Subject to mortgage approval etc (we know we can as we have a mortgage in principle for the full value, but sadly, we can't get a new build outright owned for £340k).

Half of me feels like I should just pay the stamp duty payable and see how it goes, but as someone here has rightly said, if the property price goes up, then so will the stamp duty.

It is tricky when you have never bought a place before, as you don't know what to do for the better! But, I am trying to be sensible about things, and unfortunately, despite being a new build, it does not come with appliances or carpets, so I think it may be more sensible to pay the payable SDLT which should give me enough money to pay for the carpets and appliances we will be needing.

tomM

We're purchasing a shared ownership property (resale, not new build)
Our 60% share we're purchasing is less than the 300k first time buyers relief threshold

I'm struggling to verify with anyone advising us conclusively whether we'll be able to claim the first time buyers relief on SDLT if we elect to pay in stages, ie. we'd be exempt of stamp duty purchasing only £285k.

My fear is that we're unable to qualify for the relief if we elect to pay in stages

Any insight would be much appreciated
Thanks!

henrygregory

tomM wrote: »

We're purchasing a shared ownership property (resale, not new build)
Our 60% share we're purchasing is less than the 300k first time buyers relief threshold

I'm struggling to verify with anyone advising us conclusively whether we'll be able to claim the first time buyers relief on SDLT if we elect to pay in stages, ie. we'd be exempt of stamp duty purchasing only £285k.

My fear is that we're unable to qualify for the relief if we elect to pay in stages

Any insight would be much appreciated
Thanks!

Not clear on what you mean by stages.
The advice I got from trained solicitors was laughable, I got quotes from four and three out of four were completely wrong about the rules, leaving just one who got it right.


My options were as follows:

Property Price £310k.

Option 1: Pay the full stamp duty on £310k even though you are only buying 75% of this. If you staircase in future, there will be no stamp duty to pay. As my full price is £310k, I am slightly over the threshold, so would pay £500 in duty as I am a first time buyer.

Option 2: Pay the stamp duty just on the portion I am buying. Don't have the figures to hand, but I would not be able to claim first time buyer relief and would be liable to pay something like £4k.

Naturally, I went with option 1, as I am planning on outright owning in the future, and even if I wasn't, it is cheaper by thousands!

I hope this helps. Such a minefield, and doesn't help that the "experts" you pay are clueless.

PasturesNew

I bought a SO nearly 30 years ago - and the contract demanded that I pay the full stamp duty, the option to choose was not available to me.

When I bought I'd dreamed I'd staircase to 100%, in the event I just sold it (in negative equity) and settled the balance by cheque.... so I felt "stiffed" by that.

00ec25

tomM wrote: »

I'm struggling to verify with anyone advising us conclusively whether we'll be able to claim the first time buyers relief on SDLT if we elect to pay in stages,

you can't get more conclusive than the rules themselves....
https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note

Chapter 6
Shared ownership
Relief can only be claimed in respect of the grant of a shared ownership lease or the declaration of a shared ownership trust where market value treatment applies. In such a case relief applies as usual to the relevant consideration under that treatment. Where market value treatment does not apply or has not been opted for, relief cannot be claimed in respect of any of the transactions involved in shared ownership schemes.

SDLT_Geek

00ec25 is right in a case of the grant of a new lease. First time buyers relief is only available on the grant of a shared ownership lease if the buyer elects to pay SDLT in one go at the beginning on the full market value of the property.


But I believe it is different on taking an assignment of an existing lease as here. The buyer does not have the choice of SDLT treatment on staircasing, but is bound by the choice the original lessee made.


It would need looking into more, but it might well be that first time buyers relief would be available on taking the assignment on the sum paid for the assignment (here £285k).

tomM

Thanks SDLT GEEK and 00ec25

In what ways might the original leesee!!!8217;s decision affect us here?

I!!!8217;m reading the below from other resources, which would suggest that the first time buyers relief isn!!!8217;t interacting with the shared ownership rule, as states in chapter 6, mentioned by 00ec25

Stamp Duty Land Tax on resale transactions (existing properties) follows the same procedure as with private property transactions, i.e. the consideration/purchase price for the property determines the level of SDLT, subject to the current thresholds.

What do you think?

Tom