Staircasing SDLT - can’t figure out “additional tax”

thejunk1

Hello! really hoping someone can help me make sense of this because Google has not been enlightening. 

We bought our shared ownership flat in 2017. Market value was £450k and our 40% share / the lease premium was £180k.

We want to sell and we are allowed to take two routes - selling the share via the HA (they will charge us 1%+VAT) or via an estate agent at 100%. The HA will pay the EA fee of 1% (but won’t pay the VAT). In the latter scenario we staircase to 100% on the same day that it’s sold meaning we’re liable for SDLT. But the EA thinks we can get more than the market valuation so it may make it worth it. But given we will share the profit 40/60 with the HA, the margins are super tight and I don’t want to make the wrong decision because I’ve worked out the SDLT wrongly!

Figures:
- Market value is now £495k
- EA says they could get at least £510k
- SDLT paid in 2017 was £1942 

So according to what I can find on govt website etc…

510000-180000 = 330000 (price of final share to own 100%)
 
180000 / 330000 = 0.6470588235 (the apportioned rate?)

125000 @ 0% = 0
125000 @ 2% = 2500
260000 @ 5% = 13000

(2500+13000) * 0. 6470588235 = £10029.41 to pay in SDLT 

Have I got that part right?
But what’s the additional tax part that they mention - I can’t work out how they get those figures from the govt examples.

Also a neighbour of mine is selling through the 100% route. His figures are 335k sale price, staircasing up from 124k (also 40% share). When I did the calculation above on these numbers, it came out at £4251.49 - but he told me their SDLT was roughly £3.5k. 

I’m so confused!

HUGE thanks in advance. 

SDLT_Geek

thejunk1 said:

Hello! really hoping someone can help me make sense of this because Google has not been enlightening. 

We bought our shared ownership flat in 2017. Market value was £450k and our 40% share / the lease premium was £180k.

We want to sell and we are allowed to take two routes - selling the share via the HA (they will charge us 1%+VAT) or via an estate agent at 100%. The HA will pay the EA fee of 1% (but won’t pay the VAT). In the latter scenario we staircase to 100% on the same day that it’s sold meaning we’re liable for SDLT. But the EA thinks we can get more than the market valuation so it may make it worth it. But given we will share the profit 40/60 with the HA, the margins are super tight and I don’t want to make the wrong decision because I’ve worked out the SDLT wrongly!

Figures:
- Market value is now £495k
- EA says they could get at least £510k
- SDLT paid in 2017 was £1942 

So according to what I can find on govt website etc…

510000-180000 = 330000 (price of final share to own 100%)
 
180000 / 330000 = 0.6470588235 (the apportioned rate?)

125000 @ 0% = 0
125000 @ 2% = 2500
260000 @ 5% = 13000

(2500+13000) * 0. 6470588235 = £10029.41 to pay in SDLT 

Have I got that part right?
But what’s the additional tax part that they mention - I can’t work out how they get those figures from the govt examples.

Also a neighbour of mine is selling through the 100% route. His figures are 335k sale price, staircasing up from 124k (also 40% share). When I did the calculation above on these numbers, it came out at £4251.49 - but he told me their SDLT was roughly £3.5k. 

I’m so confused!

HUGE thanks in advance. 

It would be useful to check some facts before launching into calculations.

1.  When you bought in 2017, it was from a social landlord and you were granted a new lease?

2.  You did not elect to pay SDLT on the market value of £450,000, but paid it on the £1,800 and on the rent?

3.  The SDLT you paid of £1,942 was made up of £1,100 on the premium and £842 on the rent?

4.  Are you sure of what you are to pay to staircase out?  I would expect it to be 60% of the present market value.

5.  When you staircase out, do you get the freehold, or does it remain a lease?

I can answer one question, about the "additional tax" on the original lease when there is a later transaction.  I would not expect this to apply, as your lease was granted after a key date (in 2005 from memory) after which that element of linking no longer applies.

thejunk1

Thank you for replying!
1. yes a new lease from a social landlord 
2. That’s right (on 180,000)
3. I believe that’s correct but I can’t find the explanation of how we got to that figure from the solicitor
4. We had hoped that was the case (so we would pay the HA 60% of £495,000 and the £15k extra that the EA hopefully negotiated would be ours) but they say that’s not how it works and we have to staircase at the EA price. I don’t understand why! 
5. It remains a lease

SDLT_Geek

thejunk1 said:

Thank you for replying!
1. yes a new lease from a social landlord 
2. That’s right (on 180,000)
3. I believe that’s correct but I can’t find the explanation of how we got to that figure from the solicitor
4. We had hoped that was the case (so we would pay the HA 60% of £495,000 and the £15k extra that the EA hopefully negotiated would be ours) but they say that’s not how it works and we have to staircase at the EA price. I don’t understand why! 
5. It remains a lease

If I assume you are paying £306,000 for the remaining 60% share, then I make the SDLT on staircasing out as £9,004.

Here are the maths.

Add the £180,000 and £306,000 paid.  That gives £486,000.

Work out SDLT on £486,000 using the on line calculator.  That is £14,300.

But we take a fraction of the £14,300.  The fraction is £306,000 / £486,000.  That gives SDLT of £9,004 on staircasing out.

There is a separate question of whether a form of sub-sale relief can be claimed.  The legislation does not seem to allow it, but views vary.

Note re edit:  Numbers corrected following a faulty addition.

thejunk1

I was confused about where you got 306,000 but I see now! I have made an error there haven’t I and assumed I need to pay 330000 which is the different between 510000 and 180000, which obviously I don’t! Thank you so much - this is MASSIVELY appreciated. 

thejunk1

Oh, just to check though! 180k + 306k so I should be working it out based on 486k, not 414, right? Or have I missed something else?

SDLT_Geek

thejunk1 said:

Oh, just to check though! 180k + 306k so I should be working it out based on 486k, not 414, right? Or have I missed something else?

Whoops, I made a mistake with the maths, you are right with £486K.  I have corrected the figures above now.

thejunk1

Thank you so much