HMRC SDLT: SDLTM27074 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership trust: meaning of “purchaser” FA03/SCH9/PARA8

Principles and Concepts of Shared Ownership Trust

This section of the HMRC internal manual provides guidance on shared ownership trusts, specifically focusing on the definition of “purchaser” as per FA03/SCH9/PARA8. It outlines the tax reliefs applicable to right-to-buy transactions and shared ownership leases.

  • Explains the concept of shared ownership trusts.
  • Defines the term “purchaser” in legal and tax contexts.
  • Details the tax reliefs available for shared ownership and right-to-buy schemes.
  • Provides guidance for HMRC staff on handling these transactions.

Understanding Shared Ownership Trusts and SDLT

What is SDLT?

SDLT stands for Stamp Duty Land Tax. It’s a tax that you need to pay when you buy a property or land over a certain price in England and Northern Ireland. The amount of tax you pay depends on the property’s value and the type of ownership.

Shared Ownership Trusts

A shared ownership trust is a type of arrangement where multiple parties may share the ownership of a property. This often occurs in situations where individuals cannot afford to buy a property outright. Instead, they purchase a share of the property and pay rent on the remaining share owned by a housing association or local authority.

Here are the key elements of shared ownership trusts:

– Purchaser: The term refers to those who have exclusive rights to use the property according to the trust’s conditions.
– Trust Property: This is the property that is held within the trust and shared under its regulations.
– Trust Beneficiaries: These are individuals or groups that may benefit from the trust, but they do not necessarily have exclusive rights to use the property.

Who is Considered the Purchaser?

For the purposes of SDLT, the purchaser is defined as the person or persons who have exclusive use of the trust property under the terms of the trust. This could be different from what might typically be expected.

For example:
– If two individuals enter into a shared ownership arrangement through a trust, they are the purchasers.
– The housing association or local authority that provides the remaining share of the property does not count as the purchaser, despite being a key part of the system.

The distinction is important because it affects how the SDLT is calculated and who is liable for it.

Calculating SDLT for Shared Ownership Transactions

When you purchase a share of a property in a shared ownership trust, you need to calculate the SDLT based on the value of the share you are buying. Here’s how it typically works:

1. Determine the Market Value of the Property: First, establish the total market value of the property. This will help determine the share value you are purchasing.

2. Calculate Your Share: If you are buying, say, a 50% share in a property worth £200,000, you are purchasing a share valued at £100,000.

3. Apply SDLT Rates: Based on this share value, apply the appropriate SDLT rates. The rates might be lower for smaller shares and could vary depending on any applicable reliefs.

Example of SDLT Calculation

– Property Value: £200,000
– Purchased Share: 50%
– Value of the Share: £100,000

Suppose the current SDLT rates for residential property are as follows:

– 0% on the first £125,000
– 2% on the next £125,000

You would only pay SDLT on the first £100,000, which falls in the 0% bracket, resulting in no SDLT being due on this transaction.

It’s important to regularly check current rates on the official HMRC website or based on guidance from a tax professional.

Common Misunderstandings in Shared Ownership Arrangements

There are common misunderstandings regarding who counts as a purchaser and how SDLT is applied. Here are some clear points to keep in mind:

– Shared Ownership is not Full Ownership: If you only own part of a property, like a 25% share, your SDLT liability is only on that share’s value, not the total property value.

– Social Landlords: Remember, the social landlord or any other beneficiaries of the trust do not count as purchasers. This distinction can often cause confusion.

– Eligibility for Reliefs: Some shared ownership transactions might qualify for SDLT reliefs. Reliefs reduce the amount of tax owed and can sometimes apply based on whether you buy your first home or if there are other circumstances.

Key Legislation and Guidelines

The legislation that defines and governs SDLT and shared ownership trusts can be found under specific clauses. Here’s what you should keep an eye on:

– FA03/SCH9/PARA8: This clause relates to the specifics of how purchasers are designated and the implications thereof.
– Relevant sections will dictate the calculations required to determine your SDLT liabilities as well as eligibility for any reliefs.

For deeper understanding, you can refer to [SDLTM27074 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership trust: meaning of ‘purchaser’](https://stampdutyadvicebureau.co.uk/hmrc/SDLTM27074).

Next Steps for Buyers

If you’re considering purchasing a shared ownership property, here are action steps you should follow:

1. Know Your Rights: Familiarize yourself with the shared ownership trust terms, including how the rights to property are allocated and who qualifies as a purchaser.

2. Consult Experts: Before finalizing your purchase, consider seeking advice from real estate agents with experience in shared ownership. Also, tax advisors can help you understand the SDLT implications.

3. Check for Reliefs: Investigate any potential SDLT reliefs you may qualify for. There might be significant savings available based on your circumstances.

4. Prepare for Future Transactions: If you plan to buy further shares in the property, consider how SDLT will be calculated each time you do so. SDLT is charged on each transaction, not just the initial purchase.

By understanding these principles and guidelines, you will be better equipped to navigate the complexities of shared ownership trusts and the associated SDLT obligations.

Search Land Tax Advice with Google Site Search

I am here to help. I offer free expert advice to help you understand your land tax obligations, rights, and entitlements.

Our fees come from no-win, no-fee stamp duty claims, and advice to lower your land tax liability under some circumstances.

Contact me below

Speak with Nick Garner

To discuss your stamp duty rebate case
call today:
0204 577 3323

Written by Land Tax Expert Nick Garner.
See free excerpts here.