HMRC SDLT: SDLTM27005 – Reliefs: Right to buy transactions, shared ownership leases etc: General overview FA03/S70 and FA03/SCH9
Principles and Concepts of SDLT Reliefs
This section of the HMRC internal manual provides a general overview of Stamp Duty Land Tax (SDLT) reliefs related to right-to-buy transactions and shared ownership leases under FA03/S70 and FA03/SCH9. It outlines the key principles and concepts involved in these reliefs.
- Explains the eligibility criteria for SDLT reliefs.
- Describes the process for claiming reliefs on right-to-buy transactions.
- Details the implications of shared ownership leases on SDLT.
- Provides guidance on the legislative framework governing these transactions.
Read the original guidance here:
HMRC SDLT: SDLTM27005 – Reliefs: Right to buy transactions, shared ownership leases etc: General overview FA03/S70 and FA03/SCH9
Stamp Duty Land Tax Reliefs for Specific Transactions
Introduction to FA03/S70 and FA03/SCH9
The regulations under FA03/S70 introduce specific reliefs associated with stamp duty land tax (SDLT), especially detailed in FA03/SCH9. These reliefs are critical for certain home ownership schemes and transactions, allowing for reduced tax burdens under specific circumstances. Here’s an overview of various types of reliefs and how they work:
Types of Reliefs Available
1. Relief for Right to Buy Transactions
– Detailed at SDLTM27010.
2. Relief for Shared Ownership Leases and Rent-to-Shared Ownership Lease Schemes
– Covered at SDLTM27020 and onwards.
3. Relief for Rent to Mortgage and Rent to Loan Transactions
– Explained at SDLTM27070.
4. Relief for Shared Ownership Trusts and Rent to Shared Ownership Trust Schemes
– Discussed at SDLTM27071 and beyond.
Understanding Right to Buy Transactions
Right to buy schemes allow eligible tenants, such as those in council housing, to purchase their homes, often at a discounted rate. Under the SDLT relief for these transactions:
– Chargeable Consideration:
– The amount due for SDLT is capped. This means that any additional payments tied to the sale, called contingent considerations, do not increase the tax amount.
– Essentially, the SDLT is calculated based on the lower, discounted purchase price rather than the potentially higher market value.
Shared Ownership Leases
What is Shared Ownership?
– Shared ownership schemes, also known by names like “New Build HomeBuy” or “Social HomeBuy”, enable buyers to purchase a fraction of a property and rent the remaining part.
Lease Details:
– The buyer enters a long lease agreement, paying a premium based on the share they own. For instance, they might buy a 50% share in a home and pay rent on the remaining 50%.
Staircasing:
– This term refers to the process where the owner can gradually increase their share in the property. They can make additional payments to buy more equity, eventually allowing them to own the full property either as freehold or leasehold.
SDLT Payment Options:
– Buyers can choose how to calculate their SDLT:
1. Market Value Election:
– Here, the buyer pretends they purchased the entire property at market value. This means no further SDLT is due on any future staircasing or when they buy the freehold.
2. Separate Purchases:
– Buyers can also opt to pay SDLT on each part of the property as they purchase them, based on the market value at the time. In this case, certain reliefs may apply to exempt some staircasing transactions from tax or adjust the linked transaction rules.
Shared Ownership Trusts
Shared ownership trusts operate under similar principles to shared ownership leases. They apply to commonhold flats, where ownership is shared among various residents.
Rent-to-Shared Ownership Schemes
Rent-to-shared ownership schemes, or Rent to HomeBuy, are designed for buyers who want to first rent a property before entering into a shared ownership agreement.
Key Points:
– The buyer first occupies the property through an assured shorthold tenancy.
– Only when the shared ownership lease is granted or the trust is created does SDLT become due.
– FA03/SCH9 ensures that the SDLT is calculated only at the time the lease is issued or the trust is declared, rather than when the initial tenancy is granted.
Rent to Mortgage and Rent to Loan Transactions
These reliefs specifically target certain purchases linked to the Housing Act 1985.
How It Works:
– Relief is provided by limiting the stamp duty land tax owed, so it aligns more with a calculated chargeable consideration instead of the actual purchase price.
– Essentially, the tax owed under this relief will be based on a legal framework defined under section 62 of the Housing (Scotland) Act 1987, effectively reducing the amount paid.
Key Principles of SDLT Reliefs
– Reducing Financial Burdens: The introduction of these reliefs aims to ease the financial burden on specific groups, such as first-time buyers or those in government housing schemes.
– Flexibility in Taxation: Options to select how SDLT is computed provide flexibility for buyers. This is particularly helpful for those engaging in staircasing or similar arrangements.
– Simplifying Transactions: By capping the SDLT based on the lower purchase price rather than market value — especially for right to buy transactions — the regulations simplify transactions and provide certainty regarding tax liabilities.
Example Scenarios
1. Right to Buy Example:
– A tenant in a council house eligible for the right to buy acquires their home for £100,000, which is a 50% discount off the market value of £200,000. They will only pay SDLT on the £100,000 rather than the full market value.
2. Shared Ownership Example:
– A buyer purchases a 25% stake in a property valued at £300,000, paying £75,000. If they elect to treat this as a market value purchase, they will know that no further SDLT is due when staircasing to acquire an additional 25% later.
3. Rent to Shared Ownership Example:
– A tenant living in a property through an assured shorthold tenancy decides to enter into a shared ownership lease. The tenant pays SDLT only at the point the lease is granted, thereby avoiding earlier tax payments during the tenancy period.
4. Rent to Mortgage Example:
– Suppose a family acquires their property through a scheme allowing them to rent first and then buy. The SDLT they will pay is calculated using the predetermined considerations laid out in the relevant housing legislation, which often results in a lower tax bill compared to the purchase price.
These examples illustrate how SDLT reliefs can offer significant savings and flexibility for individuals looking to buy homes or increase their ownership stakes in shared ownership properties.