HMRC SDLT: SDLTM27075 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership trust: election for market value treatment FA03/SCH9/PARA9-10
Principles and Concepts of Shared Ownership Trust
This section of the HMRC internal manual discusses the principles and concepts related to shared ownership trusts, focusing on the election for market value treatment under FA03/SCH9/PARA9-10. It provides guidance on reliefs applicable to right-to-buy transactions and shared ownership leases.
- Explains the election for market value treatment.
- Details the conditions under which reliefs can be applied.
- Clarifies the implications for shared ownership leases.
- Offers insight into the legislative framework governing these transactions.
Understanding Shared Ownership Trusts and Market Value Elections
When you buy a property through a shared ownership trust, you have the option to make a market value election. This is similar to what you can do with shared ownership leases. It’s important to understand what this means and how it affects the tax you owe when you declare your ownership under the shared ownership trust.
Key Terms Defined
- Shared Ownership Trust: A type of arrangement that allows individuals to buy a share of a property while renting the remaining share.
- Market Value Election: An option for purchasers to set the market value as the basis for calculating the amount they pay for stamp duty land tax (SDLT).
- Chargeable Consideration: The amount that is used to calculate SDLT.
The market value election allows you to determine SDLT based on the property’s market value, instead of the amount actually paid or agreed in the purchase arrangement.
The Market Value Calculation
Under the rules, the traditional definition of market value does not apply when you are making this election. Specifically, FA03/SCH9/PARA7(5) states that the market value is calculated based on the property being empty – what we call ‘vacant possession’. This means you estimate how much the property would sell for if no one lived there and it was ready for a new owner.
How to Make the Election
You make the market value election through your land transaction return when you declare your shared ownership trust. Here’s a step-by-step guide:
- Include the market value of the property as the consideration in the return.
- If you initially submitted your return and need to change it to reflect the market value, you can do so by amending your return.
- Keep in mind that any amendments need to be made within 12 months of the original filing date.
Important Note on Irrevocability
Once you make the market value election, you cannot change it – the decision is final. This means even if you later decide you’d prefer to base your SDLT on a different amount, you cannot amend this election because it is irrevocable.
The Effects of a Valid Election
Making a valid market value election has significant implications for how SDLT is calculated in your case:
- The chargeable consideration for the declaration of the shared ownership trust is the amount specified in the trust, which should reflect the market value of the property. This market value is essential for determining the initial capital contribution you make.
- When it comes to calculating SDLT, you do not need to consider any rent-equivalent payments that you may have made as part of your agreement.
Exemptions After Tax Payment
Once you have paid any SDLT that is due for the declaration of your shared ownership trust, some payments related to your ownership may be exempt from further charges. These exemptions include:
- Equity-Acquisition Payments: Any payments you make to increase your share in the property will not incur additional SDLT.
- Transfer of Interest in Trust Property: When the trust comes to an end and your interest in the property is transferred to you, this transfer is also exempt from SDLT.
Summary of the Process
Here’s how it works in practice. Imagine you are purchasing a 50% share of a property valued at £200,000 through a shared ownership trust. By making the market value election, you could declare the market value of £200,000 as the consideration in your SDLT return. If you needed to change this later, you would have to do so within 12 months, and remember, once you decide on this amount, it cannot be altered.
When you pay any SDLT due, later increases in your ownership share will not add to your SDLT liability. This makes the shared ownership trust a potentially tax-efficient way to purchase a property with shared ownership.
Final Notes
Always make sure to consult with a tax or legal professional when dealing with shared ownership trusts and making elections. This will ensure you fully understand your rights, obligations, and the best steps to take, particularly regarding tax implications and any necessary paperwork.
By navigating the shared ownership framework with a good understanding of the market value election and its consequences, you can make informed decisions that work to your financial advantage.