HMRC SDLT: SDLTM27060 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership leases: treatment where market value election not made: staircasing transactions FA03/SCH9/PARA4A

Principles and Concepts of Shared Ownership Leases

This section of the HMRC internal manual provides guidance on the treatment of shared ownership leases when a market value election is not made. It covers staircasing transactions under FA03/SCH9/PARA4A.

• Explains the reliefs available for right to buy transactions.
• Details the implications of not making a market value election.
• Outlines the process of staircasing transactions.
• Provides specific guidance for HMRC staff.

Stamp Duty Land Tax and Shared Ownership Leases

Introduction to Shared Ownership Leases

Shared ownership leases are a unique type of agreement that allows individuals to buy a share of a property while paying rent on the remaining share. These arrangements can provide a more affordable way for individuals to own a home.

Understanding the Basics

When it comes to shared ownership leases and Stamp Duty Land Tax (SDLT), there are specific rules that apply. Here’s what you need to know:

– Stamp Duty Land Tax applies when you purchase a property or leasehold interest. The amount you pay depends on the value of the property.
– If you are granted a shared ownership lease and do not make a market value election, SDLT is calculated based on two main parts:
– The premium you pay for the lease.
– The net present value of the rent you will pay over the lifetime of the lease.

For further details, refer to SDLTM10020.

Key Conditions for Shared Ownership Leases

Certain conditions must be met for a shared ownership lease to be eligible for specific tax treatments. These include:

1. Compliance with SDLT Regulations: The lease must meet the requirements outlined in SDLTM27020 and SDLTM27030, or SDLTM27050.
2. Staircasing Rights: The lease should allow the lessee(s) to make further payments, known as ‘staircasing,’ in order to acquire additional shares in the property.

What is Staircasing?

Staircasing is the process where a leaseholder can buy more shares in a property, gradually increasing their ownership stake.

– The value of the additional shares is usually determined based on the market value of the property and expressed as a percentage.
– Typically, as one staircase and acquires more of the property, the rent payable under the lease may decrease.

Exemptions from Stamp Duty Land Tax

In some cases, transactions that involve staircasing can be exempt from SDLT. This applies when:

– After the staircasing transaction, the total share held by the lessee(s) does not exceed 80% of the property.

If a lessee ends up with less than or equal to 80%, they will not have to pay SDLT on that transaction.

Examples of exempt transactions:

– A lessee begins with a 25% share and staircases to 50%. Since the total share remains below 80%, this transaction is exempt from SDLT.
– A lessee who starts with a 40% share staircasing to 75% would also not incur any SDLT charges.

When is Stamp Duty Land Tax Charged?

If the lessee staircases above 80% of the property’s value, SDLT will apply. Specifically:

– Staircasing to levels above 80% incurs SDLT.
– Acquiring a 100% share through staircasing means buying the freehold reversion or full leasehold interest, which is also liable for SDLT.

For instance:

– A tenant who staircases from 70% to 90% will be required to pay SDLT on the increase above 80%.
– Similarly, if a lessee purchases an extra 30% share, bringing their total ownership to 100%, SDLT will be charged on that entire transaction.

Calculating the Tax Due

To calculate the amount of SDLT due for a staircasing transaction above 80%, the following method is used:

1. Assess the market value of the property: This will determine the value of the share being purchased.
2. Determine the percentage increase in share: Identify how much percentage of the property share is being acquired through the staircasing.
3. Apply the current SDLT rates: Use the prevailing SDLT band rates to calculate the due amount.

It’s essential to keep updated with the current SDLT rates, as they can change frequently.

Conclusion of Key Principles

To summarize the main points regarding shared ownership leases and SDLT:

– If a market value election is not made, the standard SDLT rules apply when a shared ownership lease is granted.
– Staircasing transactions are generally exempt from SDLT as long as they do not exceed 80% ownership.
– Once a lessee’s share goes above 80% or reaches 100%, SDLT applies to those transactions.
– Careful calculations are required to ensure compliance and to determine the correct amount of SDLT payable.

For additional information on this topic, you can refer to SDLTM27060, which details reliefs associated with right to buy transactions and shared ownership leases.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM27060 – Reliefs: Right to buy transactions, shared ownership leases etc: Shared ownership leases: treatment where market value election not made: staircasing transactions FA03/SCH9/PARA4A

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