Shared Ownership: Stamp Duty Mind Melt!

00ec25

Lilstu wrote: »

My friend has read this thread and is concerned I haven’t made it clear that I have only paid that tiny amount of stamp duty when I first first bought the property and doesn’t want me to end up with a whopping big bill that I wasn’t expecting.

why do you keep listening to friends who clearly don't understand either

what is it you cannot follow about example 2 and the calculation which has already been done for you in post #14?
You will pay £1,918 given a 360k purchase price

SDLT_Geek

So we find you have to staircase first (on a back to back basis). Because acquiring the remaining 25% takes you over 80% you will have to pay some SDLT. As before I make this £1,918. It seems the estimate of £90,000 to buy the last 25% used in post 14 was accurate as you refer again to a £360K valuation. The calculation is on the same basis as before.

In 2016 you initially paid £136,000 for a 40% share.
In 2017 you paid £70,000 for a 20% share.
In 2017 you paid £52,500 for a 15% share.
In 2019 you pay £90,000 for the last 25% share to get you to 100%.

That totals £348,500. SDLT on an acquisition of a residential property at standard current rates for £348,500 would be £7,425 (calculated at slice rates, 0% on the first £125,000, 2% up to £250,000, 5% on the rest).

But you pay SDLT of a fraction of the £7,425. The fraction is 90,000 / 348,500. This gives £1,918 SDLT for you to pay on staircasing to 100%.

SDLT_Geek

OP, how did the back to back staircasing and sale go?

ajk1

Hi All,

Posting on MSE for the first time and hoping to get your take on an issue we are facing here.
Not sure whether to start a new thread, but trying to piggy back off this one since I see its technically still open and an added case study may be useful as additional context.

We bought a shared ownership flat in 2010 (lease started in 2007).
We bought a 40% of a 410 k flat. (The 40% share was valued at 164 k).
The current valuation is 685 k (so the 40% is now worth 274 k).

The housing association has been unable to find a buyer within their 'notice period', so one of the options put before us to do a back-to-back transaction and staircase out - effectively selling 100% of the flat on the open market.

Estate Agents and Solicitors have so far have been unable to provide a clear cut answers and we are keen to confirm whether or not we need to pay SDLT (stamp duty tax) even though we are only staircasing to sell 100% ?

@SDLT Geek had some good insights here but happy to hear from anyone familiar with this topic.

Regard
K

SDLT_Geek

ajk1 wrote: »

We bought a shared ownership flat in 2010 (lease started in 2007).
We bought a 40% of a 410 k flat. (The 40% share was valued at 164 k).
The current valuation is 685 k (so the 40% is now worth 274 k).

The housing association has been unable to find a buyer within their 'notice period', so one of the options put before us to do a back-to-back transaction and staircase out - effectively selling 100% of the flat on the open market.

Estate Agents and Solicitors have so far have been unable to provide a clear cut answers and we are keen to confirm whether or not we need to pay SDLT (stamp duty tax) even though we are only staircasing to sell 100% ?

I assume that if you are to staircase from 40% to 100% the 60% uplift will cost you £411,000 (60% of £685K).

The first step is for you to look at the 2007 lease taken by your predecessor. It is possible that it contains a clause stating that the lessee elected in 2007 to pay the SDLT in one go on the market value of the property at the time. If that election was made then SDLT has been paid which covers future staircasing. Even though it is you as a successor who staircases to over 80%, there is no further SDLT due from you. (Of course the buyer from you will pay SDLT in the usual way on the price paid to you for the flat.)

Absent such an election and you staircasing in one go to 100%, then you must pay SDLT on the £411,000. That works out at £10,550. No subsale relief is available even if you do a back to back sale of the flat. That is because the "subject matter" of your acquisition (the rent reduction inherent in a staircasing transaction) is not the same as the subject matter of your sale (the sale of your lease).

The sum of £10,550 has been worked out on a straight £411,000 without linking it to any other transaction. The staircasing you undertake is a transaction with the social landlord and you have no previous acquisition from the social landlord. Your 2010 acquisition was from your predecessor lessee: a person who is not a "connected person" with the social landlord. As your acquisitions are from two unconnected persons, they cannot be linked.

If you are able to sell your lease at 40% then there is no SDLT for you to pay and your buyer will pay SDLT on the lower figure paid to you for the lease. It might suit the buyer to staircase in stages, so mitigating SDLT, with SDLT only due on steps taking them above 80%. It might work well if they go from 40% to 80% and then later from 80% to 100%.

ajk1

Thanks for responding SDLT Geek

I assume that if you are to staircase from 40% to 100% the 60% uplift will cost you £411,000 (60% of £685K).

You are correct about the 411k for the 60% share.

The first step is for you to look at the 2007 lease taken by your predecessor. It is possible that it contains a clause stating that the lessee elected in 2007 to pay the SDLT in one go on the market value of the property at the time.

.
What do you mean here?
We bought a 'New Build' flat, which means we were the first to purchase and live in the flat.
Does that mean there is no predecessor ?

Absent such an election and you staircasing in one go to 100%, then you must pay SDLT on the £411,000. That works out at £10,550. No subsale relief is available even if you do a back to back sale of the flat. That is because the "subject matter" of your acquisition (the rent reduction inherent in a staircasing transaction) is not the same as the subject matter of your sale (the sale of your lease).

Interesting, my reading into the subject thus far showed that 'subsale relief' was the route I would need to follow to avoid the SDLT. I am not sure I fully understand the reason you provided as to why I cannot use this route. Are you highlighting a difference between stair-casing to increase our % ownership Vs stair-casing to to sell 100% (back to back) ?

Isn't true to say that if the staircase happens 'at the same time' as the sale, we (the seller) will not have to pay SDLT ?

I do understand that selling the share only (40%) will avoid stamp duty fees, but I am also under the impression that one is less likely to sell this way.

SDLT_Geek

ajk1 wrote: »

You are correct about the 411k for the 60% share.

What do you mean here? We bought a 'New Build' flat, which means we were the first to purchase and live in the flat. Does that mean there is no predecessor ?
When you said that you bought in 2010 and the lease started in 2007, I took that as meaning the lease had been granted in 2007 to a predecessor and you had bought it in 2010. It seems from what you say now that the lease was granted direct to you in 2010. That changes the amount of SDLT which would be due.

I see that you paid £164,000 in 2010 for the grant of the lease. So if you staircase paying £411,000 you will have paid £575,000 in total. SDLT on £575,000 at today's rates would be £18,750. You pay a fraction of that. The fraction is £411,000 / £575,000. That gives SDLT due of £13,402 if you staircase out.

You should look at the 2010 lease and your records to establish whether you elected to pay SDLT "in one go" when you took the grant of the lease in 2010. If you did, then there would be no SDLT now on you staircasing out.

Interesting, my reading into the subject thus far showed that 'subsale relief' was the route I would need to follow to avoid the SDLT. I am not sure I fully understand the reason you provided as to why I cannot use this route. Are you highlighting a difference between stair-casing to increase our % ownership Vs stair-casing to to sell 100% (back to back) ?
Yes, the interest you "buy in" is different from the interest you "sell on" so subsale relief is not available.

Isn't true to say that if the staircase happens 'at the same time' as the sale, we (the seller) will not have to pay SDLT ?
No, that is not true. You are a "buyer" as well as a seller if you staircase out. It would be different if you could sell your lease as it is and your buyer staircases out.

I do understand that selling the share only (40%) will avoid stamp duty fees, but I am also under the impression that one is less likely to sell this way.

That might be right, depending on your local market. There is an SDLT cost though to staircasing out.

ajk1

Thanks SDLT Geek,

I understand your angle, however, there is one part that I can't get my head around.

So if you staircase paying £411,000 you will have paid £575,000 in total. SDLT on £575,000 at today's rates would be £18,750. You pay a fraction of that. The fraction is £411,000 / £575,000. That gives SDLT due of £13,402 if you staircase out.

I am stair casing to sell on the open market, or doing a back to back transaction, whatever the correct term is, but I am not actually buying the additional 60% (411k).
What I mean by that is, I am actually not putting any money for the 411k share... i am not putting any money down to buy this share. I hope that makes sense.

So I understand if I was literately buying the additional 60% share...and then selling 100%, but in my case I am only following the process of the housing association for selling on the open market and not putting any additional money down to purchase the 60%.

Have I maybe been clearer here?
Thanks for your insight so far

SDLT_Geek

The way most back to back staircasing transactions work is "staircase, then sell". That means, using money from your buyer, you pay the social landlord so that you staircase to 100%. You then have a fully staircased lease to transfer to your buyer. All this happens in one go, but in that order. Although you do not have to fund the money to staircase, the conveyancing process means that you are staircasing and paying the social landlord. This method often means SDLT for the staircasing seller.

An alternative structure is "sell, then staircase". You would sell your 40% lease and your buyer would then staircase. It is usually done in one go. That way you make no "acquisition", you are just a seller and pay no SDLT.

I suggest you check which way it is being done and if (as is likely) it is being done as a "staircase, then sell", see if it is too late to change it to a "sell, then staircase" transaction, given that there is £13,402 SDLT at stake for you.

But none of this is a problem if you elected to pay all of the SDLT in one go in 2010. Have you checked your lease yet?

ajk1

Thanks for clarifying the difference between "staircase, then sell" ...and... "sell, then staircase".
We do not have an offer/buyer yet but we'll ensure to raise this point with solicitors.

You should look at the 2010 lease and your records to establish whether you elected to pay SDLT "in one go" when you took the grant of the lease in 2010

But none of this is a problem if you elected to pay all of the SDLT in one go in 2010

I do not recall 'opting' to pay any SDLT in 2010.
I only remember paying a deposit, solicitor fee and a survey fee.
The lease is a 50-page paper document (non-electronic) but I am making my way through it for any comments related to SDLT/Stamp Duty/Tax