It is homebuyers, and not sellers, who pay Stamp Duty Land Tax (SDLT). Even so, there are a few things it is worth being aware of if you are planning to sell your Shared Ownership home.
Market value election, resales and SDLT
The first person to buy a Shared Ownership new-build home has two options: to pay SDLT in stages (i.e. just to pay SDLT on the initial share) or to make one upfront SDLT payment as if they had purchased the property in full on the open market. We discussed these options in more detail in this article: SDLT – Paying outright vs paying in stages.
You might be asking yourself, but what does this have to do with me selling my home? Let’s assume you were the first buyer of your Shared Ownership home and that you opted to pay SDLT in stages. In that case, your buyer will have to pay SDLT if they staircase over 80% in the future. However, if you made a full market value election but did not staircase to 100% before selling your part share, the good news for your buyer is that they get the benefit of your decision. If you paid SDLT upfront in full - and if there is a statement in the lease to this effect - then your buyer will not have to pay SDLT if they staircase. It might be a useful selling point…
Back-to-back sales and SDLT
What exactly is a ‘back to back’ sale?
The most straightforward way to think of a back-to-back sale is as a legal mechanism which allows your buyer to purchase your home outright even though you are only selling a part share. For instance, if I owned a 25% share of my home but a buyer wanted to purchase 100% of the property, this would be possible with a back-to-back sale.
Back-to-back sales - Why?
When you decide to sell your Shared Ownership home, your landlord has the right to find a buyer during a specified period, usually four weeks or eight weeks depending on your lease. This is called a nomination period. Perhaps your landlord failed to find a buyer for your share during the nomination period? In that case, you will need to sell your share on the open market.
A back-to-back sale may be your only option if there is no interest in your part share. And an advantage of a back to back sale is that you can sell at the open market value, which may be higher than the RICS valuation. (Though bear in mind that if you fail to achieve the RICS valuation, your landlord can require you to pay over to them the shortfall on their share).
Back-to-back sales - How?
So what actually happens in a back-to-back sale? A Shared Ownership lease may (although not always) state that a shared owner can only staircase once they have owned their initial share for a specified period of time – usually one or two years. (This is not a legal requirement; it is down to each housing association’s own policies). Does this cause a problem if a potential buyer wants a share that is larger than the percentage share you are selling? The answer is no! Your buyer will not have to wait for a year or two after purchasing your share to staircase.
First off, it is possible for a homebuyer to buy a share from a shared owner seller and to simultaneously staircase by purchasing an additional share from the landlord. For example, if you sold a 25% share but your buyer wanted to purchase a 50% share, then the buyer could simply purchase the additional 25% from the landlord directly. In this case, as you have only sold your 25% share, there would be no SDLT implications for you to consider. The buyer would be liable for any SDLT due on their home purchase.
It’s a slightly different story if you are selling 100% via a back-to-back sale. Rather than you selling your 25% share, and your buyer buying the remaining 75% from your landlord, it is usually the case that you would need to staircase to 100% at the same time as selling your share.
Back-to-back sales and SDLT
Nevertheless, you shouldn’t need to pay any SDLT on staircasing to 100% as part of a back-to-back sale as you are entitled to claim ‘sub-sale relief’. A SDLT return would still need to be filed with HMRC but no SDLT would be payable.
There's an important caveat here: to be eligible for sub-sale relief on SDLT it is essential that contracts to sell have been exchanged before staircasing takes place. Additionally, there should be no delay between staircasing and sale. This is why back-to-back sales are often known as 'simultaneous sale and staircasing' - the emphasis here is on the 'simultaneous' part.
Another way of thinking about sub-sale relief is that it is a way of preventing a double tax charge – i.e. of making sure that you and your buyer are not both paying SDLT on the same transaction.
It should be noted that HMRC guidance on staircasing to 100% as part of a back-to-back sale is somewhat ambiguous. (By the by, be aware that you will only make a gain (or loss) on your current part share, unless you staircase to 100% before putting your home on the market.)
I already paid SDLT on a back-to-back sale. What can I do?
If you have already paid SDLT on a back-to-back sale your options will depend on how long ago your sale took place. If your completion date was less than a year ago, you may still be able to claim the relief. Contact your solicitor to explain the situation. If they maintain that SDLT was payable, ask them to explain why you were not entitled to claim sub-sale relief. If you are not satisfied with their explanation you might want to signpost them to more detailed features on this issue written by tax specialists - for example here. You can also call the HMRC SDLT Helpline on 0300 200 3510.
Unfortunately, if your completion date was over the 12-month deadline, HMRC will not issue a refund even if you have overpaid SDLT due to not claiming sub-sale relief. In that case, you may want to consider making a formal complaint to the legal firm who dealt with your conveyancing.
Don’t take our word for it!
As this article makes clear, SDLT is complicated! If you have any concerns, talk to your conveyancing solicitor. If you are still confused then call the HMRC SDLT Helpline. Depending on the amounts involved, you might also want to take independent advice from a specialist tax expert (although the fees could be costly).