Read the original guidance here:
HMRC SDLT: SDLTM27030 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership leases: market value election where freehold reversion is available: detailed conditions FA03/SCH9/PARA2

Understanding Shared Ownership Leases and Stamp Duty Land Tax Relief

Shared Ownership Leases: Key Conditions

When dealing with shared ownership leases where the freehold reversion is available, it is essential to meet specific conditions in addition to the general requirements laid out in SDLTM27020. Here are the key conditions that must be fulfilled:

• The lease must include terms that allow the lessee or lessees to acquire the reversion. This means that the lease should clearly state that the tenant has the right to buy the freehold back from the landlord.
• The lease should have been granted partly due to a rental agreement and partly due to a premium. This premium should be calculated based on:
  • The market value of the property, or
  • A sum determined by the market value of the property.
• The lease must include a statement that outlines:
  • The market value of the dwelling, or
  • The sum which is calculated according to that market value.

  This statement is critical because it indicates how the premium was set.

• The lessee needs to choose to have stamp duty land tax (SDLT) applied to the market value or the sum based on that value, as stated in the lease. This selection must be explicitly made to ensure applicable relief is received.

Market Value Definition and Calculation

It is important to note that when calculating the market value for these purposes, FA03/SCH9/PARA2(5) sets aside the usual definition of market value as outlined in FA03/S118. Instead, for the purposes of this election, the market value is determined on the basis of vacant possession. This means the calculation assumes that the property is empty and available for rent or sale without any occupancy rights.

Making the Election

The lessee’s choice to use the market value or the equivalent sum is made through the land transaction return submitted at the time when the lease is granted. This return will show the market value as the consideration for the transaction.

If a lessee decides to amend the original land transaction return to use the market value instead, this must happen within 12 months of the return’s filing date.

Irrevocability of the Election

Once the election to apply stamp duty land tax in line with the market value is made, it cannot be revoked. This means that even if there are subsequent changes or amendments to the return, the original decision stands.

Example Scenario

To clarify, let’s consider an example:

– Suppose a couple, John and Sarah, enter into a shared ownership lease for an apartment valued at £250,000.
– Their lease includes terms allowing them to acquire the freehold reversion.
– The lease agreement states that they will pay a rent but also pay a premium of £50,000 calculated based on the market value.
– The lease also contains a declaration stating that the market value of the parent dwelling is indeed £250,000.

In this case, to take advantage of the SDLT reliefs provided for shared ownership leases, John and Sarah must elect to apply the SDLT on the £250,000 rather than the nominal value provided in their rental agreement.

Documentation and Important Considerations

Here are some essential points to keep in mind regarding the lease and the SDLT relief process:

• All documentation must be accurate and clearly state the conditions mentioned above.
• Lessees should keep a copy of the lease agreement on file as it contains vital information regarding their acquisition rights and market value considerations.
• Any amendments made to the land transaction return need to be submitted promptly to ensure compliance with the timeframe stated.
• Consult with a tax adviser or legal professional if there’s any uncertainty about the process or obligations to ensure correct submission and adherence to HMRC requirements.

Additional Resources

For more detailed information on stamp duty land tax and its various applications, lessees are encouraged to visit the relevant pages on the HMRC website or seek assistance from experts in tax law.

For further reading on specific guidance regarding shared ownership leases and related topics, you can visit the following link: SDLTM27030 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership leases: market value election where freehold reversion is available: detailed conditions FA03/SCH9/PARA2.