There are two ways to pay Stamp Duty Land Tax (SDLT) when buying property through a shared-ownership scheme:
- Making a ‘market value election’: a one-off payment based on the total market value of the property.
- Paying in stages: you are required to pay the total due on the initial purchase amount but you will not be required to make any further payments until you own more than an 80% share of your property.
Market Value Election
When you make a market value election, you make a one-off SDLT payment as if you had bought the property outright. The SDLT is based on the market value of the property at the time of purchase, for example if the value of the property is £185,000 the amount of tax payable would be £1,200.
If you buy a property under a shared ownership scheme and you make a market value election, you can get a further share of the property, but you won’t pay any more SDLT. Similarly, if you buy 100% of the property by getting the freehold, you must fill in an SDLT return to tell HMRC, but you will not pay any more SDLT.
If you have never owned a property before (or a share in one), you may be able to take advantage of the First Time Buyer relief which would mean that no tax would be payable even if you made a market value election. To be a first-time buyer you should not have owned any property in the UK or elsewhere at any time. The government have issued guidance on the definition of ‘first-time buyer’ here. If you have owned a property before, you will not be considered a first-time buyer.
If you decide not to make a market value election on completion you are allowed to amend the return and pay the tax up to 12 months after completion.
Paying in Stages
If you decide to pay any SDLT due in stages, you will pay less to begin with. There is no stamp duty payable if the premium payable for your share is less than £125,000. You may have to make further payments if you increase your share of the property later.
If you buy more shares in a property, called ‘staircasing’, until your share reaches more than 80%, you don’t pay any more SDLT or tell HMRC about the transactions in a SDLT return.
Once your share of the property goes over 80%, you will pay any SDLT due on both the transaction that took you over 80% and any further transactions.
Generally, making a market value election is beneficial where you can take advantage of the first-time buyer relief or to take advantage of the current property value before it more than likely increases with time. The higher the value of the property, the more tax may be payable. However, if you do not consider that you will staircase and acquire more than 80% of the property in the future then you may wish to pay any SDLT due in stages.
Further information is available on the government website. If you have any specific queries regarding stamp duty I would recommend you take specialist advice from a financial advisor or accountant, as it can be a complex area.
If you would like more information on this blog, please do not hesitate to get in contact with me on 01283 214231 or at k.holmes@timms-law.com.
