How does Stamp Duty work in Shared Ownership?

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While considering a Shared Ownership property, it is essential to understand how Stamp Duty Land Tax (SDLT) works in this context. It tends to work differently than it would if you were buying a freehold or a normal leasehold property. Shared Ownership properties are different because you may start with a smaller percentage of the property and gradually purchase additional shares, a process known as staircasing.

Please note the below two options are only applicable if you are buying the property brand new from a developer.

How does SDLT apply to Shared Ownership properties?

If you are buying a Shared Ownership property, you have a choice about when and how you pay your Stamp Duty. Essentially, you can choose to pay it on the full market value of the property when you purchase it or you can opt to pay it on the value of the share you are purchasing. The option you choose will affect how much Stamp Duty you pay in the future.

Market Value Election

Market value election is an option that allows homebuyers to pay Stamp Duty on the full market value of the property they are looking to buy. By choosing this option, first-time buyers may benefit from a material SDLT saving under the first-time buyer relief scheme since purchasing additional equity in the shared ownership property will cause the loss of first-time buyer status.

Paying in Stages

The second option for paying Stamp Duty in a Shared Ownership property is paying in stages as you staircase. With this option, homebuyers can purchase an initial share of the property and pay Stamp Duty on the value of that share only depending on the value of this purchase. As they purchase additional shares in the property over time, they can pay Stamp Duty on the value of each additional share. If the value of the share being purchased exceeds the SDLT threshold, the buyer will be required to pay Stamp Duty. However, first-time buyers may still benefit from SDLT relief on their initial share purchase, even if the value exceeds the threshold.

Our top tips

Here are some tips you can follow to reduce the SDLT you have to pay:

  • Paying in stages works best if you are not sure about buying additional equity soon and if you may want to sell your property before reaching 100%.
  • If you intend to gradually increase your ownership share in a property through staircasing until you reach 100%, it may be more financially beneficial to pay the Stamp Duty upfront at the property's initial lower valuation instead of paying it in stages as the property's value increases.
  • Make use of the SDLT relief for first-time buyers - at time of writing, initial home purchasers in England and Northern Ireland will be exempted from paying stamp duty if they buy a home valued up to £425,000. For properties priced between £425,001 and £625,000, a stamp duty of 5% will be levied only on the amount exceeding £425,000. (This relief does not apply to properties over £625,000)
  • If you are buying with someone who is a first-time buyer, consider purchasing the property in their name only, to avoid paying SDLT on your share.
  • Try to have a rough estimate of when and by how much you plan on staircasing - this may help you better plan your cash flow.

SDLT for second-hand properties

For purchases that are not for brand new properties from the developer, the Stamp Duty applicable is the same as a regular property transaction without the above two options. The thresholds applicable at the time will apply as it would with a non-Shared Ownership transaction.

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