When purchasing a new shared ownership property, you have two distinct choices for handling Stamp Duty Land Tax (SDLT). You can either calculate the tax based on the entire market value of the property—essentially as if you were acquiring full ownership—or only on the initial share you buy plus the associated rent.

At first glance, the latter option seems more economical, potentially lowering your SDLT burden. However, this approach could result in additional SDLT liabilities in the future.

Paying SDLT on Your Initial Share
Many budget-conscious buyers opt to pay SDLT based on the actual share they acquire instead of the property’s full value, which is often referred to as paying in stages.

When you choose this staged payment method, the stamp duty is calculated on:

• The price paid for your ownership stake in the property, and
• A supplementary amount that reflects the rent owed to the housing association, calculated based on the total rent over the lease’s duration. Thankfully, HMRC offers a calculator to simplify this process for you and your solicitor.

For instance, if you invest £80,000 for a 25% share in a property valued at £320,000, SDLT would apply to the £80,000 plus the rent component. With the current SDLT threshold set at £250,000, if your overall consideration is below this amount, you won’t owe any SDLT. Thus, unless your rent is exceedingly high, opting to pay in stages could mean you owe no stamp duty at all for this purchase.

Staircasing in Shared Ownership
One downside to paying SDLT in stages is that additional SDLT fees will be incurred once you increase your ownership beyond 80%. Staircasing refers to the process of purchasing more shares in the property, gradually increasing your ownership percentage and reducing your rent until you achieve full ownership.

The structure of SDLT for staircasing transactions is notoriously complex. Here’s a brief overview:

• No extra SDLT is incurred if your ownership remains below 80%.
• Once your ownership exceeds 80%, SDLT will be applicable on staircasing transactions at the prevailing rate.
• If you staircase in increments—say, to 85% then 90%—the additional SDLT might exceed your expectations. This is due to HMRC treating these transactions as ‘linked transactions’ and taxing the cumulative value of all linked purchases together, potentially leading to a higher SDLT rate than if assessed individually.

Depending on your shared ownership agreement, selling your property may require you to simultaneously staircase to 100% ownership, resulting in an unforeseen SDLT bill. You might be able to mitigate this charge through a claim for stamp duty sub-sale relief, so consulting with your solicitor is essential before proceeding.

Paying SDLT on the Full Market Value
The alternative option, paying SDLT on the full market value of the property, means you calculate your SDLT based on the complete value of the asset. In the previous example, SDLT would then be assessed on the entire £320,000, despite your initial payment of £80,000 for a 25% share.

For homes valued over £250,000, the SDLT rate is set at 5%, which would result in a £3,500 SDLT bill in this case. However, if you are a first-time buyer, you may qualify for first-time buyer relief, allowing you to avoid SDLT for the first £425,000 and only incur 5% on amounts from £425,001 to £625,000. In this scenario, a first-time buyer would owe no SDLT on the full market value of £320,000.

The advantage of opting for full market value SDLT is its simplicity: you pay a higher amount initially, but you are free from any additional SDLT charges when acquiring further ownership in the property.

What option will you select?

When it comes to making a choice based on your future intentions for the property. For instance, if you acquire a 25% stake now, do you intend to gradually increase your ownership? If so, when and in what manner will you do this? Will you likely sell the property before achieving 80% ownership?

If you don’t foresee acquiring a significantly larger stake, it’s prudent to minimize your SDLT payment now, as paying on the full market value may not yield many advantages.

Conversely, if this is a long-term investment and you aim to escalate to 100% ownership in the coming years, it may be wise to pay the full market value upfront, particularly if you qualify for first-time buyer’s relief or anticipate substantial future increases in property values.

Regardless of the path you choose, consult with a solicitor before finalizing any agreements. At Preuveneers, our knowledgeable team is here to assist you in calculating your SDLT obligations and ensuring that all processes are transparent. Navigating SDLT on shared ownership can be complex—don’t tackle it alone!

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