Shared Ownership and Stamp Duty Land Tax (SDLT)
Of course, no one expects shared owners to be tax experts! But it can be helpful to have a grasp of the basics of Stamp Duty Land Tax (SDLT). First, so that you can have an informed conversation with your solicitor and, second, so that you know what your options are if you’re not confident you’re getting the best advice.
SDLT… What exactly is it?
Let’s start with the basics. SDLT is a tax you pay if you buy a home over a specified price (the ‘threshold’) in England and Northern Ireland. If you buy a property for a price under the threshold there’s no SDLT to pay. And the threshold is lower for first-time buyers. (We’ll come back to first-time buyer thresholds and staircasing later in this article.)
However, because Shared Ownership involves initially purchasing a part share in your home, SDLT is more complicated than for conventional home purchases. If you staircase (i.e. purchase additional shares in your home), you may need to pay SDLT on the transaction. In this feature we’ll explain when you have to pay SDLT, and when you don’t have to pay it.
Do I have to pay SDLT when I staircase? 4 key facts
- Once you’ve paid any SDLT due on your initial share, you won’t pay any more SDLT until you staircase over 80%. No matter how many times you staircase in the meantime
- If you made a ‘full market value election’ when you bought your first share then you won’t pay any more SDLT. Ever! Even if you staircase over 80%. (This is because you already pre-paid SDLT at the outset)
- The same applies if the first buyer of your home made a ‘full market value election’ when they bought their first share. You get the benefit of their decision, and you won’t pay SDLT even if you staircase to over 80%
- If you staircase to 100% via a simultaneous sale and staircasing transaction (also known as a ‘back-to-back’ sale) you shouldn’t have to pay SDLT
What is a ‘full market value election’?
When a Shared Ownership home is sold for the first time, the buyer has two options:
- to pay SDLT in stages, or
- to make a ‘full market value election’
If you make a ‘full market value election’ SDLT is calculated on the full market value of the whole property and you pay this, upfront in one go, when you purchase your initial share (£0 SDLT if the total value is under the threshold). Otherwise you’ll pay SDLT just on the price of your initial share, not the whole property (£0 SDLT if the price of your initial share is under the threshold).
Only the first buyer of a new-build Shared Ownership home has this choice. You can’t subsequently make a full market value election on a resale if the very first buyer didn’t make an election. In that case, you have no option but to pay SDLT in stages.
Staircasing over 80%
This is where things can get complicated. Assuming you’ve chosen to pay SDLT in stages, the total amount you pay could be different depending, for example, on how many times you staircase. For example, whether:
- EXAMPLE 1 - you buy an initial 50% share and then staircase to 100% in one go, or
- EXAMPLE 2 - you buy an initial 50% share then staircase to 75% before finally staircasing to 100%
If you’re paying SDLT in stages, it’s practically impossible to make an accurate prediction - at the outset – of how much you’ll end up paying in total. As we’ve already mentioned, this can be affected by when you staircase, and by what percentage (or, indeed, whether you staircase at all). The total amount of SDLT payable could also be affected by factors including:
- Property market movements
- HMRC changes to SDLT thresholds
- SDLT ‘holidays’ (for example, as in 2020-21), and/or
- If your personal circumstances change in ways that are relevant for the calculation of SDLT payable (for example, if you sublet your Shared Ownership home)
Am I still treated as a first-time buyer when I staircase?
No, unfortunately not. Once you’ve acquired an initial share in a Shared Ownership property (regardless of the size of the share) you lose first-time buyer status for subsequent staircasing transactions.
Simultaneous sale and staircasing transactions
If you are staircasing to 100% as part of a simultaneous sale and staircasing transaction, you shouldn’t have to pay SDLT. This is because you can claim SDLT sub-sale relief. Unfortunately, HMRC guidance is currently vague on this point, and some solicitors may be misadvising their clients.
Don’t take our word for it!
We’ve explained that SDLT on Shared Ownership transactions is more complex than open market home purchases. This article is intended to help you understand the ins and outs of SDLT when it comes to staircasing. But don’t rely too heavily on anything specific in this article… HMRC guidance and thresholds are continually updated, and everyone’s personal circumstances are different. Our article is intended simply to help you have an informed conversation with your own solicitor.
But even solicitors get it wrong sometimes and any mistakes can leave shared owners out of pocket. So it’s vital to choose a solicitor with expertise in Shared Ownership staircasing and SDLT.
What are my options if I’m not confident in the SDLT advice I’ve been given?
- Ask your solicitor to explain their advice and calculations – in writing
- Signpost your solicitor to any relevant information you have found. Obviously this will need to be from a reliable, expert source
- If you’re still concerned, contact HMRC’s SDLT Helpline
- You could ask your solicitor to consult a more senior colleague or an external tax expert. If they’re not operating as part of a firm, they might be able to seek advice from a professional conveyancing network such as Bold Legal Group
- You could also pay for expert tax advice yourself, but this could be costly
- If you believe you’ve already overpaid SDLT as a result of incorrect advice, you can request a refund from HMRC. Before you do, make sure to speak with your original conveyancer, take independent advice and call the HMRC helpline on 0300 2003 510
HMRC Stamp Duty Land Tax: shared ownership property.
HMRC Guidance: Find out how much Stamp Duty Land Tax (SDLT) to pay when you buy property through a shared ownership scheme.