Shared ownership can enable an individual to own a stake in a property where they would not otherwise be able to get on the housing ladder. As with other property purchases, stamp duty land tax (SDLT) is payable where you buy a property through shared ownership in England or Northern Ireland. SDLT does not apply in Scotland and Wales where, respectively, land and buildings transaction tax and land transaction tax apply instead.
To complicate matters, there are different ways of paying the SDLT.
Buying through an approved shared ownership scheme
Where a property is purchased through an approved shared ownership scheme, there are two ways in which the SDLT may be paid:
- a one-off payment based on the total market value of the property; or
- in stages.
These options are available if the shared ownership lease is granted by an approved qualifying body, which may be:
- a local housing authority;
- a housing association;
- a housing action trust;
- the Northern Ireland Housing Executive;
- the Commission for the New Towns; or
- a development corporation.
Where the decision is to pay the SDLT upfront, a market value election is made. The SDLT is paid on the market value of the property at that time. Where this option is chosen, it is necessary to send in an SDLT return and make a one-off SDLT payment as if the freehold or leasehold had been purchased outright from the start.
Under this route, no further SDLT is payable, even if a bigger share in the property is purchased later on (known as ‘staircasing’).
This option is advisable where the total market value is less than the SDLT threshold, or first-time buyer threshold, as appropriate.
A market value election can be made when the SDLT return is submitted, or within the period of 12 months after the return deadline by amending the return.
Leasehold properties and market value elections
If the property is a leasehold property and the lease allows the purchaser the freehold to the property, HMRC will charge SDLT on the market value of the freehold. This will be the value at first sale and stated in the lease. It usually applies to houses.
Where the lease does not allow the purchaser to have the freehold, where a market value election is made, SDLT is payable on the open market premium. This is the premium that would be payable at that time for the largest share of the property that the purchaser can have under the terms of the lease.
Paying SDLT in stages
If a market value election is not made, the SDLT is payable in stages. For the first transaction, SDLT is charged on the premium paid for the grant of the lease. If there is a high annual rent, the net present value of the rent will be taken into account in working out the SDLT payable.
Where further shares in the property are purchased, no more SDLT is payable under the ownership share reaches HMRC. Until this point, HMRC do not need to be told about further transactions.
Once the share reaches 80%, SDLT is payable on the transaction that breaches the 80% threshold and on any further transactions. The SDLT is payable on the total amount paid for the property so far.
The transactions are treated as linked transactions.
Under this option, less SDLT may be payable at the outset, but if subsequent shares are purchased when the value of the property has increased, the total SDLT payable may be more.
SDLT has become one of the most complicated areas of property tax following the introduction of the higher rate surcharge. I consistently come across errors which have cost a client literally £’000s.
To talk through your SDLT position, get in touch on 0800 907 8633, via email@example.com or online.