Shared ownership stamp duty - clear as mud

OrlaJ

Hey there,

Wondering if anyone knowledgeable about stamp duty can help with a question. I've been searching the internet but to no avail as all of the mainstream info doesn't apply to me given I bought my place prior to the stamp duty for shared ownership rules changing. So, here goes:

In 2017 I bought 40% of a £425,000 flat, and paid £900 in stamp duty (on £170,000)
In 2019 I staircased to 75% and paid no stamp duty as I was still below 80%

My question has two parts i) if I staircase again, likely to 85% - how much stamp duty would I have to pay? and ii) if I were to do a back-to-back staircase to 100% and sell, would I have to pay stamp duty, and if so how much?

Grateful of your insight!

Thanks,
Orla 

SDLT_Geek

When you bought in 2017, did you buy from a social landlord taking a new lease?  Or perhaps your purchase was by taking an assignment of an existing lease.

If you staircase to 100% will you get the freehold (possible for a house) or will you still have a lease, though at just a ground rent (very likely to be the case for a flat)?

OrlaJ

I'd bought it as a 'resale', the lady who owned 40% before me was moving on. It's a share of a leasehold, so even at 100% ownership it would still be a leasehold. There's no ground rent though, which I know is unusual, but fortunate. 

The housing agency said there 'shouldn't be stamp duty payable' on back to back staircasing, however I want to be 100% sure as I'm trying to weigh up what's best - slowly staircasing my way to 100% (from 75%), or doing the back-to-back sales arrangement. Would you know about SDLT in this situation?

Many thanks,

blue_max_3

OrlaJ said:

slowly staircasing my way to 100% (from 75%), 

I have a feeling you'd have to get a valuation each time and there may be fees to pay each and every time you make any change. Apologies if you know that not to be the case, but something to be aware of.

OrlaJ

You're right, and there's large solicitors fees to pay each time too. However, due to the savings on the rent on the other side and the potential to gain from the appreciation on the extra share it does work out slightly better.
Although these calculations aren't taking account of the potential stamp duty, which could really change things! Which is why I'm looking to get to the bottom of the stamp duty question.

blue_max_3

OrlaJ said:

You're right, and there's large solicitors fees to pay each time too. However, due to the savings on the rent on the other side and the potential to gain from the appreciation on the extra share it does work out slightly better.
Although these calculations aren't taking account of the potential stamp duty, which could really change things! Which is why I'm looking to get to the bottom of the stamp duty question.

If values drop, you may be in a good position to benefit. 
Can't help with the stamp duty - it's mind boggling!

SDLT_Geek

 Because you took the assignment of an existing lease, rather than taking the grant of a lease, the later payments made to staircase (up to 75% and then to 85% or 100%) are not “linked” either to the payment the original lessee made in taking the lease, nor the payment you made to take the assignment of the lease.

The linking therefore is of the sums you paid to staircase to 75%  and the payments you make for the next staircasing (either to 85% or to 100%).

To do an accurate calculation I would need to know the value of the flat taken when you staircased to 75% and the value when you staircase on, but I am making a working assumption for now that the value stayed at £425,000.

On the basis that the value was £425,000 then when you acquired a 35% share you    paid £148,750.

If you now staircase to 85% then that will require SDLT to be paid. Assuming for that 10% share you pay £42,500 then the total you will have paid for staircasing will be £191,250. SDLT on £191,250 would be £1325. You only pay SDLT of a fraction of that. The fraction is £42,500÷£191,250. Applying this fraction to  £1325 gives tax due of £294.

If instead you staircase directly to 100% then you are acquiring a 25% share and I will assume that you pay for that £106,250. Added to the £148,750 I assume you paid to get to 75% this gives total payment of staircasing of £255,000. SDLT on £255,000 would have been £2750. You pay a fraction of that. The fraction is £106,250 divided by £255,000. That’s a fraction of £2750 is £1146, so that is the tax due.

I do not believe that you can escape SDLT on a back-to-back sale by virtue of subsale relief. That is because the interest you require (a rent reduction) is not the same chargeable interest which you pass on to the buyer (the lease itself).

OrlaJ

Thanks very much for clarifying SDLT_Geek! 
They really don't make it clear or simple do they, this information should be accessible and easily available.