Read the original guidance here:
HMRC SDLT: SDLTM27071 – Reliefs: Right to buy transactions, shared ownership leases etc: Rent to shared ownership lease: treatment of transactions FA03/SCH9/PARA13

Understanding Rent to Shared Ownership Lease Schemes and Tax Reliefs

This guidance covers a specific tax relief related to rent to shared ownership lease schemes under the FA03/SCH9/PARA13 regulation. It explains what these schemes are, how they operate, and their implications for tax treatment.

What is a Rent to Shared Ownership Lease Scheme?

A rent to shared ownership lease scheme allows individuals or joint applicants to gain ownership of a property over time. Here are the key points:

• Qualifying Body: This is the organisation that facilitates the shared ownership lease. It can include local authorities, housing associations, or other eligible entities.
• Shared Ownership Lease: This lease gives the individual or individuals a part-ownership of the property, where they can own a percentage of it while renting the remaining share.
• Assured Shorthold Tenancy: Under this scheme, the qualifying body will also provide an assured shorthold tenancy for the same dwelling. An assured shorthold tenancy is a type of rental agreement defined by the Housing Act of 1988, giving tenants security and rights.

Eligibility and Application Process

Individuals interested in this scheme may not have an automatic right to a shared ownership lease. Instead, the following applies:

• Application Process: The terms of the scheme may allow individuals to apply for a shared ownership lease. However, their eligibility will depend on an assessment of their financial situation.
• Contractual Rights: Some individuals may already have a right to a shared ownership lease through a contract, even if the contract is not fully completed. For example, if an agreement has been signed but not yet executed, this still qualifies.

Tax Treatment of Transactions

Within these schemes, tax rules classify several transactions as not linked under the regulations of FA03/S108. This includes:

• Grant of Assured Shorthold Tenancy: The agreement to rent the property does not impact the taxation rules surrounding the shared ownership lease.
• Grant of Shared Ownership Lease: The process of moving from renting to ownership is treated separately for tax purposes.
• Other Transactions: Any additional agreements, such as options to purchase, made as part of this scheme are also treated independently.

Effective Date of Shared Ownership Lease

When determining the effective date of a shared ownership lease under the regulation FA03/S44, the following need to be considered:

• Disregarding Tenancy Possession: The fact that a person is living in the property under an assured shorthold tenancy does not affect the effective date of the shared ownership lease. Therefore, even if someone moves into the property after agreeing to purchase but before the lease is granted, the effective date will still be the date when the lease is officially granted.
• No Triggering of Substantial Performance: If an individual is already living in the property when the contracts are exchanged, this does not trigger any substantial performance requirements. This is explained further in the guidance SDLTM07900.

Examples to Clarify the Concepts

Let’s look at some examples to illustrate how these schemes work and the corresponding tax treatments:

• Example 1: Successful Application: A couple applies for a shared ownership lease and is assessed to be financially eligible. After being granted an assured shorthold tenancy, they start renting the home. When they eventually complete their shared ownership lease, the effective date of that lease is the date it is granted, and the initial tenancy does not affect this date.
• Example 2: Existing Contract: An individual has signed a contract to obtain a shared ownership lease but has not moved in yet. They begin renting the property under an assured shorthold tenancy while waiting for the final lease agreement. Here, even while residing at the property, the effective date will still proceed based on when the shared ownership lease is formally granted.
• Example 3: Options to Purchase: A housing association offers an option to a tenant to buy a share of the property they currently live in under a tenancy. This transaction is treated separately from their tenancy agreement, and the effective date for any tax obligations will be handled distinctly when the purchase occurs.

These examples show the importance of the separation between renting and ownership transactions for tax purposes under a rent to shared ownership scheme.

Additional Information

For more specific inquiries regarding your situation, you can refer to guidance such as SDLTM27071 – Reliefs: Right to Buy Transactions, Shared Ownership Leases, etc. This can provide further insight into your rights and responsibilities under these arrangements.