S_Stamp duty

Stamp Duty on Affordable Housing Transactions

Stamp Duty Land Tax is a tax on land transactions above a certain threshold set by the Inland Revenue.

When you buy a share in a property through an approved Shared Ownership Scheme you may have to pay a Stamp Duty Land Tax (SDLT). There are two ways to pay on a newly built (new Lease) property:

  1. Making a one off payment based on the total market value of the property, or
  2. Paying any SDLT due in stages.

If you decide to make a one off payment upfront this is known as making a “market value election”.

If you choose to pay SDLT in stages then you pay SDLT on the initial purchase amount. Should you choose to pay SDLT in stages, you will not have to make any further payments until you own more than an 80% share of the property.

Each of the options of paying the SDLT could suit you, depending on your circumstances. It is up to you to decide.

The differences between the two payment options and how SDLT is calculated in each case are explained briefly below.

Market Value Election – one off SDLT payment

If you decide to make a market value election, you make a one off SDLT payment in the same way as if you bought a freehold or leasehold property outright from the start. The SDLT is based on the market value of the property at the time (this will be shown in the Lease).

Once you have paid the SDLT due you will not have to pay any more on the property purchase. It makes no difference whether you “staircase” your ownership by buying a bigger share in the property later on, perhaps in several stages.

It is up to you to decide if making the market value election is more advantageous than electing to pay SDLT on the initial purchase price. It is often most beneficial to make a market value election when the total market value of the property is no more than the threshold for paying SDLT or you intend to live in the property for some time! The threshold is currently £125,000.

Paying SDLT in Stages – the initial transaction

If you decide to pay SDLT due in stages you will pay less to begin with, but you may make further payments if you later increase your share of the property.

Paying SDLT in Stages – buying further shared in a property

If you buy further shares under the “staircasing” provisions, you do not have to pay anymore SDLT until you share exceeds 80%. This is the case whether or not you have paid any SDLT on the initial transaction.

However, once your share of the property exceeds 80% you must pay any SDLT due on both of the following:

  1. The transaction that took you over 80%
  2. Any subsequent transactions

The rate of SDLT applied to these payments is based on the total amount you have paid for the property so far. This is because the transactions are treated as “linked transactions” for SDLT purposes.

Please note: the option to elect market value or premium and rent, only applies to the grant of a new Lease.

Stamp Duty Land Tax on resale transactions (existing properties) follows the same procedure as with private property transactions, i.e. the consideration/purchase price for the property determines the level of SDLT, subject to the current thresholds.

For full details including practical examples, of SDLT payable on Shared Ownership properties, please see HM Revenue & Customs website:

http://www.hmrc.gov.uk/sdlt/calculate/shared-ownership.htm