HMRC SDLT: Guide on SDLT for Shared Ownership: Paying in Stages for First-Time Buyers

SDLT and Shared Ownership: Paying in Stages

When purchasing a shared ownership property, buyers can choose to pay Stamp Duty Land Tax (SDLT) in stages. First-time buyers can benefit from SDLT relief if the property’s market value is £625,000 or less, as stated in the lease. This relief applies to the initial purchase and exempts rental payments from SDLT, provided the relief is claimed during the first transaction.

  • SDLT can be paid in stages for shared ownership properties.
  • First-time buyers’ SDLT rates apply if the property value is £625,000 or less.
  • The relief covers the initial share purchase and exempts rental payments from SDLT.
  • The relief is applicable only during the first transaction when the lease is granted.
  • Example: A buyer pays £180,000 for a 40% share in a £450,000 property, with no SDLT due.

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Paying Stamp Duty Land Tax (SDLT) in Stages for Shared Ownership

When someone buys a property through shared ownership and chooses to pay the Stamp Duty Land Tax (SDLT) in stages, special rules apply. This article explains how the SDLT rates for first-time buyers work in this situation, including the conditions that must be met and the benefits available.

Understanding the Basics of Shared Ownership

Shared ownership allows individuals to buy a portion of a property while paying rent on the remaining share. This arrangement is especially helpful for first-time buyers who may struggle to afford a home. Buyers can start by purchasing a small share (often between 25% to 75%) and then gradually increase their ownership over time.

Paying SDLT in Stages

When a buyer opts to pay SDLT in stages, it can be beneficial. Instead of paying all the tax upfront based on the full market value of the property, the buyer only pays tax based on the actual amount paid for their initial share (referred to as ‘the premium’).

Eligibility for First-Time Buyers’ Relief

To qualify for the first-time buyers’ relief when paying SDLT in stages, the following conditions must be met:

  • The total market value of the property, as referenced in the lease, must be £625,000 or less.
  • The buyer must not have owned a property before, which defines them as a first-time buyer.

If these conditions are met, first-time buyers can benefit from lower SDLT rates.

No SDLT on Initial Share Premium

If a buyer purchases an initial share in the property, and the market value is below the threshold of £625,000, then no SDLT will be due on that payment. This means that the buyer can save money right from the beginning.

Rental Payments and SDLT

In a shared ownership situation, the buyer typically pays rent on the remaining share of the property. It is essential to know that if first-time buyers’ relief is claimed, it also applies to the rental payments. Therefore, no SDLT will be due on these rental payments either.

Example Scenario

To illustrate how this works in practice, consider the following example:

A first-time buyer purchases a 40% share of a property with a market value of £450,000 for £180,000 (this is the premium). Since this amount is part of a shared ownership arrangement, the buyer decides to pay the SDLT in stages.

  • The market value of the property (£450,000) is below the £625,000 threshold, so first-time buyers’ relief applies.
  • As a result, no SDLT is due on the initial £180,000 paid for the share.

In this case, even though the buyer will pay rent on the remaining 60% share, they do not have to pay SDLT on the rental payments because they are claiming first-time buyers’ relief.

First-Time Buyers’ Relief Summary

First-time buyers’ relief offers significant financial advantages for those entering the property market. Here’s a summary of how it applies in shared ownership scenarios:

  • Buyers can pay SDLT based on the amount paid for their initial share rather than the full market value.
  • The property’s value must be £625,000 or less for the relief to be applicable.
  • No SDLT is payable on rental payments associated with the shared ownership.

Important Considerations

While shared ownership and SDLT relief provide a pathway to homeownership for many, buyers must be aware of certain factors:

  • The relief only applies to the first transaction when the lease is issued by the scheme provider. Subsequent purchases of additional shares might be subject to different SDLT rules.
  • Buyers should keep track of their eligibility status to ensure they claim the relief correctly.

More Information on SDLT and Shared Ownership

If you need detailed information about how to implement these rules and understand your obligations, you can refer to the guidance documentation provided by HMRC. For other SDLT considerations and specific scenarios, you may find applicable guidance through relevant links such as SDLTM0000.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Guide on SDLT for Shared Ownership: Paying in Stages for First-Time Buyers

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Written by Land Tax Expert Nick Garner.
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