HMRC SDLT: Understanding SDLT Implications for Staircasing in Shared Ownership Properties
SDLTM29890 – Interaction with Shared Ownership – Staircasing Transactions
This section explains how the relief for first-time buyers does not apply to staircasing transactions in shared ownership properties. It outlines the conditions under which Stamp Duty Land Tax (SDLT) is applicable when a purchaser increases their share in the property. The rules ensure that initial relief is not withdrawn, even if the total cost exceeds £625,000, unless ownership exceeds 80% without a market value election.
- First-time buyer relief does not apply to staircasing transactions.
- Relief is not withdrawn if total payments exceed £625,000.
- No further SDLT is due until ownership exceeds 80% without a market value election.
- Standard SDLT rates apply when ownership exceeds 80%.
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Read the original guidance here:
HMRC SDLT: Understanding SDLT Implications for Staircasing in Shared Ownership Properties
Understanding SDLTM29890 – Interaction with Shared Ownership and Staircasing Transactions
What is Staircasing?
Staircasing is when a person who has received a lease on a shared ownership property buys additional shares in that property. This method allows homeowners to gradually own more of their home over time.
First-Time Buyer Relief
First-time buyer relief is a tax benefit that helps new homeowners when they buy their first property. However, this relief only applies to the initial purchase. If a buyer later decides to buy more shares in their property through staircasing, the relief does not apply to these additional purchases.
– For example, if someone buys a 25% share in a property and claims first-time buyer relief, they will not benefit from this relief if they later decide to buy another 25% share, increasing their ownership to 50%.
Impact of Staircasing Transactions
When a staircasing transaction occurs, it does not affect any previous relief that was already claimed. This means:
– If a buyer initially acquired a property and received relief, that relief remains intact even when they make subsequent purchases.
– Even if the total amount spent on all transactions surpasses £625,000, the relief claimed on the lease grant is not withdrawn.
For example:
– If a buyer buys a property for £500,000 and claims the first-time buyer relief, they could later staircase to a total ownership of 75% by making several transactions costing up to £200,000. Their relief from the initial purchase will still apply, despite the total exceeding £625,000.
Market Value Election
In staircasing transactions, if the buyer does not make a market value election, they are not required to pay any additional Stamp Duty Land Tax (SDLT) until their ownership share in the property exceeds 80%. This is key to understand as it gives buyers some time before any further tax liability arises.
– Once the ownership share surpasses 80%, the normal SDLT rules will apply. This means the buyer will pay SDLT based on the full market value of the property they are acquiring.
Tax Calculation on Ownership Increase
When a buyer increases their ownership share to more than 80%, they must use the standard SDLT rates to calculate the tax owed on that transaction. This can vary based on the property’s value and the percentage of ownership being purchased.
– Continuing with the earlier example, if that same buyer eventually decides to staircase to own 85% of the property (after having already reached 75%), the SDLT will be based on the value associated with that 85% ownership, following the established residential tax rates.
The Importance of SDLT Rates
SDLT is a tax that buyers must consider when purchasing properties. The rates can be different based on how much of the property is being bought and the total price of the residential property.
Here are some important points regarding SDLT rates:
– The rates are progressive, which means the tax rate increases as the property price goes up.
– As a homeowner approaches or exceeds the 80% ownership threshold, the SDLT is calculated on the value of the transaction and added to any previous costs.
For example:
– If the property is worth £300,000 and the buyer is increasing their ownership to over 80%, the calculation will be based on the full value of the property, applying the appropriate SDLT rates.
Practical Examples of Staircasing and SDLT Calculations
Let’s look at a few scenarios to illustrate how staircasing works in conjunction with SDLT:
1. First Transaction: A buyer initially purchases a 40% share of a property worth £200,000. The initial payment of £80,000 qualifies for first-time buyer relief. They pay no SDLT.
2. Second Transaction: A year later, they buy an additional 10% share for £20,000. They are still below the 80% threshold, so there is no SDLT due at this point.
3. Third Transaction: After another year, they decide to increase their ownership to 85% by purchasing another 30% share for £60,000. Since this pushes them over the 80% threshold, SDLT now applies on the additional share they are purchasing. The calculation will be based on the market value of this increased ownership.
What Happens Under Market Value Election?
If the homeowner chooses to make a market value election, different rules come into play. With this election, the buyer will be taxed as if they are purchasing a full share based on the market value of the whole property.
This means:
– Once a market value election is made, every subsequent transaction will be treated as if the buyer is taking a full ownership stake.
– SDLT will be calculated according to the property’s full market value at every transaction point.
For example:
– If the same buyer who made a market value election decides to buy the remaining shares up to 100%, even if it equates to a larger amount than what was paid initially, they will pay SDLT based on the entire market value of the property, not just the percentage they are acquiring.
Conclusion of Key Points
Understanding the implications of staircasing and SDLT is critical for homeowners engaging in shared ownership schemes. By familiarising oneself with how taxes apply, especially when ownership thresholds are crossed, buyers can plan their purchases more effectively and avoid unexpected financial burdens.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Understanding SDLT Implications for Staircasing in Shared Ownership Properties
