What stamp duty do I pay?

Scorer15

Hi all, I have a query about what stamp duty I am legally obliged to pay when staircasing from 50% shared equity to 100% as nobody I ask seems sure.

We bought 50% of a property in a shared ownership scheme. The property was worth £193,000 and therefore under the threshold of £250,000 which meant at the time that as first time buyers we didn't need to pay stamp duty. We are now looking to staircase to 100% ownership of the property. The property is now worth £330,000.

We're taking out a mortgage for £240,000 to cover the 50% of the property that we are purchasing (165,000), as well as the remaining balance on the previous mortgage (£75,000). My query is what exactly is the total that the stamp duty calculations is based on? Is this based on the mortgage of £240,000, or would this be based on the 50% value of the property which would be £165,000?

When I called HMRC (twice) I was told that the two purchases would be treated independently, meaning that there would be no stamp duty to pay on the first 50% that we had already purchased, but that we would need to pay stamp duty on the new 50% purchase, and therefore treated like two totally separate purchases. The two people I have spoken to both confirmed that this would mean paying 2% of the value between the £125,000 threshold up to £165,000 (£40,000), meaning a stamp duty of £800. My solicitor initially came up with a different calculation of around £1950 though after they also spoke to the same person at HMRC they are happy to accept the £800 is the total.

However, as a second point I know that buyers have two choices when they purchase a shared ownership property - one being to pay in stages when they staircase and the other to pay the stamp duty in full based upon their initial purchase price, meaning they don’t pay more stamp duty when they staircase.

Had we been non-first time buyers of a shared ownership scheme then we would have had the option to pay our stamp duty up front and save on stamp duty when staircasing. However, as first time buyers our property was below the stamp duty threshold and so we never had any option to pay anything up front.

Does anyone have any experience of this and would you think we should be paying zero or £800? I agree that if it is treated as two separate purchases then technically we should be paying.On the other hand we are still essentially first time buyers, we're just buying the rest of our home now, when we didn't have that option to pay stamp duty up front because we were under the threshold.

I've now written to HMRC by post as they don't appear to use email and wouldn't do anything over the phone other than tell me to write in to them. If their reply isn't forthcoming then I will have to go with the paying £800 as this is all the solicitor would proceed with. I was just curious if anyone had gone through something similar.

Thanks!

SDLT_Geek

For me to be able to help, please say:

1. On what date did you buy the initial 50% share?

2. Did you buy the initial 50% direct from the social landlord? That sounds most likely from what you say. Or perhaps the social landlord granted a lease to someone else who then sold the lease to you.

00ec25

pending the facts SLT geek has asked for so he can do the calculation for you, you could actually work it out yourself by simply reading the HMRC info

market value election? n/a from what you say
so read example 2
https://www.gov.uk/guidance/sdlt-shared-ownership-property

bear in mind HMRC call centre staff are not technical experts and barely know what day of the week it is, let alone be able to answer tax questions

Scorer15

The initial 50% was purchased in April 2012 and it was direct from a housing association, a new build.

Well the calculator doesn't fit the situation which is the difficulty. It gives you the option to pay up front (we weren't able to do this because we were also first time buyers so were under the threshold), or pay upon staircasing, which we are doing. However, it's not that we decided to pay upon staircasing, we just didn't even know there were options. Obviously given the option of paying upon initial purchase I would have opted for the 'I'll pay the stamp duty in full right now' option as I know the stamp duty would have been zero for a first time buyer.

So the example doesn't factor in that we were actually first time buyers AND shared ownership. It seems that they have rules for being a shared ownership buyer, and rules for first time buyer, but not both. And it isn't clear that if you're staircasing whether you are still a first time buyer or if it's considered your second purchase. If we are still first time buyers then we shouldn't be paying stamp duty imo as the property upon initial purchase was under the threshold at the time. If it's considered a second purchase then we maybe should be paying, but again if we are staircasing I would have liked that initial option to pay stamp duty up front that I didn't get. Maybe I didn't get the option because the value of the stamp duty was zero?

So from them saying it's like 2 separate purchases it sounds like the latter, but as you say I don't really trust the staff on the phones, and they couldn't tell me if I was a first time buyer, or whether I should have had the option of paying stamp duty up front upon initial purchase. It's just a case of hoping for some clarity through the post which I doubt I will get. I'll probably have more questions than answers.

To be honest, I'll pay the £800, it's not that I think it's excessive or anything, but obviously if someone has been through this and knows different then I'd obviously prefer not to need to pay!

00ec25

Scorer15 wrote: »

The initial 50% was purchased in April 2012 and it was direct from a housing association, a new build.

Well the calculator doesn't fit the situation which is the difficulty. It gives you the option to pay up front (we weren't able to do this because we were also first time buyers so were under the threshold), or pay upon staircasing, which we are doing. However, it's not that we decided to pay upon staircasing, we just didn't even know there were options. Obviously given the option of paying upon initial purchase I would have opted for the 'I'll pay the stamp duty in full right now' option as I know the stamp duty would have been zero for a first time buyer.

So the example doesn't factor in that we were actually first time buyers AND shared ownership. It seems that they have rules for being a shared ownership buyer, and rules for first time buyer, but not both. And it isn't clear that if you're staircasing whether you are still a first time buyer or if it's considered your second purchase. If we are still first time buyers then we shouldn't be paying stamp duty imo as the property upon initial purchase was under the threshold at the time. If it's considered a second purchase then we maybe should be paying, but again if we are staircasing I would have liked that initial option to pay stamp duty up front that I didn't get.

So from them saying it's like 2 separate purchases it sounds like the latter, but as you say I don't really trust the staff on the phones, and they couldn't tell me if I was a first time buyer, or whether I should have had the option of paying stamp duty up front upon initial purchase. It's just a case of hoping for some clarity through the post which I doubt I will get. I'll probably have more questions than answers.

To be honest, I'll pay the £800, it's not that I think it's excessive or anything, but obviously if someone has been through this and knows different then I'd obviously prefer not to need to pay!

read shared ownership paragraphs on page 10 of the document available here:
https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note

the final sentence of the paragraph headed "paying SDLT in stages" will give you your answer

you can then go back to example 2 of the link previously referenced...

Scorer15

Ok but in that example the cost of the property as a whole is above the threshold that means it qualifies for stamp duty upon initial purchase. So they could elect to pay the stamp duty up front in full. My property was below the threshold for stamp duty so I didn't have an option to pay anything as there was nothing to pay. Now that my property is above the threshold it's almost like I'm being forced into the second option which is paying stamp duty upon staircasing, which doesn't see fair.

00ec25

Scorer15 wrote: »

Ok but in that example the cost of the property as a whole is above the threshold that means it qualifies for stamp duty upon initial purchase. irrelevant in the context of your question So they could elect to pay the stamp duty up front in full. My property was below the threshold for stamp duty so I didn't have an option to pay anything as there was nothing to pay. Now that my property is above the threshold it's almost like I'm being forced into the second option which is paying stamp duty upon staircasing, which doesn't see fair.

you ask your original conveyancing solicitor for a copy of the SDT return they had to do at the time of purchase

it will be a matter of fact whether you did, or did not, make a market value election - I will take as read you had no idea what was going on at the time, but your conveyancer did, and should have asked you and recorded your response, so they have evidence they can rely if you now challenge it.

if you did not make a market value election then example 2 applies

HMRC have your SDT return from the purchase and they know exactly what election you made - you can of course alternatively obtain a copy of your SDLT return from them if you no longer have contact with the original conveyancer.

Scorer15

Well given my solicitor was trying to ask me for £1950 then I assume I didn't make any such election, as I'm using the same solicitor now. You're correct in that at that time I didn't really think about what staircasing was going to mean for stamp duty, I was just relieved to be getting a place and was told by the housing agency that stamp duty was zero. However, whether that was because of it being an initial purchase or because it was under the threshold it's unclear. Thanks for the responses anyway, I think purely just to get it through before the valuation expires I'll end up paying the £800 and potentially chase a reply after from HMRC.

I've just seen your edit. I guess I can request this from HMRC then and see what was declared. I definitely was not asked whether I wanted to pay stamp duty up front, but at the same time it would have been a silly question because there was zero to pay with it being under the threshold.

00ec25

Scorer15 wrote: »

but at the same time it would have been a silly question because there was zero to pay with it being under the threshold.

nonetheless a competent conveyancing solicitor should know the shared ownership rules and have made damn sure they did what was best at the time - which would have been a market value election, for the reasons you outline ....

SDLT_Geek

First time buyers' relief was not in effect in April 2012. The first version expired on 24.03.2012. So your choice was to:

(a) pay SDLT at the time on the £96,500 paid which came to zero (but pay some if you staircased to over 80%) or
(b) to pay on the full market value. That would have been £1,930 at the time.

The position on staircasing is that £1,940 is due. This is worked out as follows:

1. Add up the sums you pay for the lease. £96,500 for the first 50%, £165,000 for the rest. That is £261,500.

2. Work out the SDLT on £261,500 at today's rates. That is £3,075.

3. But you pay SDLT on a fraction of that. The fraction is £165,000 / £261,500.

4. That fraction of £3,075 is £1,940.

It seems that you made a good decision to pay zero SDLT. You have kept the use of your £1,930 all of this time and only now have to pay a few pounds more. A result!

Paying £800 now is not an option, SDLT is a self-assessed tax and it is up to you to get it right.

Scorer15

Sorry we moved into the property in April 2012 but actually completed the purchase prior to that. It was a brand new build and we were the first people to move in. There were delays in the build so we didn't actually move in and start paying the mortgage until April but we had technically completed the mortgage a few months beforehand. I'm just used to saying April as that's when the mortgage runs from.

SDLT Geek i think this must be the calculation that the solicitor is now using, although they are now satisfied that £800 is the number. They said that they need to go with what they know to be true to the best of their knowledge at the time of submission and are accepting HMRC's phone advice for that. As I say, I can afford the stamp duty and think it's actually very cheap, it's just one of those technicalities that didn't seem clear and finding an exact answer hasn't been easy.

I'm more than happy to pay the £800 and if HMRC want to come chasing me for more that I'm due to pay then that's fine, at least I might be able to engage them in more of a conversation when they want something rather than someone on the phone who knows very little, or relying on postal letters.