Staircasing & Stamp duty query.

brownbearl

Hello, please could someone advise if my understanding of the application of the rules is correct. 

In May 2022, I completed on a purchase of 25% (£126,250) of a shared ownership leasehold flat with market value of £505,000, as a first time buyer. At that time I chose not to pay stamp duty on the full market value, so to date I have not paid any stamp duty. 

At the time, Gross Rent was £13,887 per Anum subject to annual rent reviews. My understanding is that my options now are to:

• Staircase from current 25% to 80% ownership and no stamp duty is due. And we leave it at that.

OR

• Staircase from current 25% to 100% ownership in one transaction and £8,937.50 stamp duty is due.

OR

• Staircase to 80% ownership in any number of % stages and no stamp duty is due. I then staircase to 90% ownership and £1,413 stamp duty is due. I then staircase to 100% ownership and £1,525 stamp duty is due.

My working out is below.

Go straight from 25% to 100% in one go

I buy an additional 75% in one transaction:

75% of £505,000 = £378,750

Using the 2021–22 bands:

• 0% on £125,000 = £0
• 2% on next £125,000 = £2,500
• 5% on remaining £128,750 = £6,437.50

Total SDLT = £8,937.50

Staircase in 10% steps, then cross 80% near the end

I staircase 25% → 80% in steps

All of these are £0 SDLT

I staircase 80% → 90%

Total paid so far:

90% of £505,000 = £454,500

SDLT on £454,500:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £204,500 = £10,225

Total SDLT on full amount = £12,725

Apportion to this 10% step:

£50,500 ÷ £454,500 = 11.11%

£12,725 × 11.11% = £1,413

I staircase 90% → 100%

Total paid so far: £505,000

SDLT on £505,000:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £255,000 = £12,750

Total = £15,250

Apportion to final 10%:

£50,500 ÷ £505,000 = 10%

£15,250 × 10% = £1,525

Total SDLT under the staged method

• All steps up to 80%: £0
• 80% → 90%: ~£1,413
• 90% → 100%: ~£1,525

Total = £2,938

SDLT_Geek

brownbearl said:

Hello, please could someone advise if my understanding of the application of the rules is correct. 

In May 2022, I completed on a purchase of 25% (£126,250) of a shared ownership leasehold flat with market value of £505,000, as a first time buyer. At that time I chose not to pay stamp duty on the full market value, so to date I have not paid any stamp duty. Because of what you say here, I am assuming that you bought from the social landlord and you bought by way of the grant of a new lease.  Also that the property is in England, so the relevant stamp duty is stamp duty land tax.

At the time, Gross Rent was £13,887 per Anum subject to annual rent reviews. My understanding is that my options now are to:

• Staircase from current 25% to 80% ownership and no stamp duty is due. And we leave it at that. Agreed

OR

• Staircase from current 25% to 100% ownership in one transaction and £8,937.50 stamp duty is due. I make the SDLT £11,437, as explained below

OR

• Staircase to 80% ownership in any number of % stages and no stamp duty is due. I then staircase to 90% ownership and £1,413 stamp duty is due. I then staircase to 100% ownership and £1,525 stamp duty is due.

My working out is below.

Go straight from 25% to 100% in one go

I buy an additional 75% in one transaction: You are working on the basis that you can buy shares at the original valuation.  That is fine for an illustration, but in practice I expect the staircasing payments will be based on the value at the time, so the SDLT calculations will be a little different.

75% of £505,000 = £378,750

Using the 2021–22 bands: You should be using the bands in force at the time of the staircasing.  By happy chance, these are presently the same as the bands you use below.

• 0% on £125,000 = £0
• 2% on next £125,000 = £2,500
• 5% on remaining £128,750 = £6,437.50

Total SDLT = £8,937.50 I make it £11,437, as explained below.

I work out the SDLT on the total paid of £505,000.  That is £15,250 as you have calculated below.  I take a fraction of that.  The fraction is £378,750 / £505,000.  That gives SDLT of £11,437.

Staircase in 10% steps, then cross 80% near the end

I staircase 25% → 80% in steps

All of these are £0 SDLT Agreed.

I staircase 80% → 90%

Total paid so far:

90% of £505,000 = £454,500 Assuming the value for staircasing purposes stays at £505,000.  In practice the value is likely to change.

SDLT on £454,500:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £204,500 = £10,225

Total SDLT on full amount = £12,725  Agreed

Apportion to this 10% step:

£50,500 ÷ £454,500 = 11.11%

£12,725 × 11.11% = £1,413 Agreed

I staircase 90% → 100%

Total paid so far: £505,000 Assuming the value for staircasing purposes stays at £505,000.  In practice the value is likely to change.

SDLT on £505,000:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £255,000 = £12,750

Total = £15,250 Agreed

Apportion to final 10%:

£50,500 ÷ £505,000 = 10%

£15,250 × 10% = £1,525 Agreed

Total SDLT under the staged method

• All steps up to 80%: £0
• 80% → 90%: ~£1,413
• 90% → 100%: ~£1,525

Total = £2,938 Agreed

See my comments in bold italics above.

brownbearl

SDLT_Geek said:

brownbearl said:

Hello, please could someone advise if my understanding of the application of the rules is correct. 

In May 2022, I completed on a purchase of 25% (£126,250) of a shared ownership leasehold flat with market value of £505,000, as a first time buyer. At that time I chose not to pay stamp duty on the full market value, so to date I have not paid any stamp duty. Because of what you say here, I am assuming that you bought from the social landlord and you bought by way of the grant of a new lease.  Also that the property is in England, so the relevant stamp duty is stamp duty land tax.

At the time, Gross Rent was £13,887 per Anum subject to annual rent reviews. My understanding is that my options now are to:

• Staircase from current 25% to 80% ownership and no stamp duty is due. And we leave it at that. Agreed

OR

• Staircase from current 25% to 100% ownership in one transaction and £8,937.50 stamp duty is due. I make the SDLT £11,437, as explained below

OR

• Staircase to 80% ownership in any number of % stages and no stamp duty is due. I then staircase to 90% ownership and £1,413 stamp duty is due. I then staircase to 100% ownership and £1,525 stamp duty is due.

My working out is below.

Go straight from 25% to 100% in one go

I buy an additional 75% in one transaction: You are working on the basis that you can buy shares at the original valuation.  That is fine for an illustration, but in practice I expect the staircasing payments will be based on the value at the time, so the SDLT calculations will be a little different.

75% of £505,000 = £378,750

Using the 2021–22 bands: You should be using the bands in force at the time of the staircasing.  By happy chance, these are presently the same as the bands you use below.

• 0% on £125,000 = £0
• 2% on next £125,000 = £2,500
• 5% on remaining £128,750 = £6,437.50

Total SDLT = £8,937.50 I make it £11,437, as explained below.

I work out the SDLT on the total paid of £505,000.  That is £15,250 as you have calculated below.  I take a fraction of that.  The fraction is £378,750 / £505,000.  That gives SDLT of £11,437.

Staircase in 10% steps, then cross 80% near the end

I staircase 25% → 80% in steps

All of these are £0 SDLT Agreed.

I staircase 80% → 90%

Total paid so far:

90% of £505,000 = £454,500 Assuming the value for staircasing purposes stays at £505,000.  In practice the value is likely to change.

SDLT on £454,500:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £204,500 = £10,225

Total SDLT on full amount = £12,725  Agreed

Apportion to this 10% step:

£50,500 ÷ £454,500 = 11.11%

£12,725 × 11.11% = £1,413 Agreed

I staircase 90% → 100%

Total paid so far: £505,000 Assuming the value for staircasing purposes stays at £505,000.  In practice the value is likely to change.

SDLT on £505,000:

• 0% on £125,000 = £0
• 2% on £125,000 = £2,500
• 5% on £255,000 = £12,750

Total = £15,250 Agreed

Apportion to final 10%:

£50,500 ÷ £505,000 = 10%

£15,250 × 10% = £1,525 Agreed

Total SDLT under the staged method

• All steps up to 80%: £0
• 80% → 90%: ~£1,413
• 90% → 100%: ~£1,525

Total = £2,938 Agreed

See my comments in bold italics above.

Super helpful, thank you. Yes you are right that I am going off a past valuation, I fully expect the valuation once I start proceedings to be different!