HMRC SDLT: SDLTM27077 – Reliefs: Right to buy transactions, shared ownership leases etc: Rent to shared ownership trust: treatment of transactions FA03/SCH9/PARA14

Principles and Concepts of SDLTM27077

This section of the HMRC internal manual discusses the treatment of transactions under the Finance Act 2003, specifically focusing on reliefs related to right-to-buy transactions and shared ownership leases. It provides guidance on handling rent to shared ownership trusts.

• Explains the legal framework under FA03/SCH9/PARA14.
• Details the reliefs available for right-to-buy transactions.
• Clarifies the tax implications for shared ownership leases.
• Outlines the treatment of rent to shared ownership trusts.

SDLTM27077 – Reliefs: Right to Buy Transactions, Shared Ownership Leases etc: Rent to Shared Ownership Trust: Treatment of Transactions FA03/SCH9/PARA14

Overview of Rent to Shared Ownership Trust Scheme

A ‘rent to shared ownership trust scheme’ allows individuals to become beneficiaries of a shared ownership trust. This scheme is typically facilitated by a social landlord, which is a qualifying body. Under this arrangement, the qualifying body grants an assured shorthold tenancy for a dwelling to the person or persons joining the trust.

Understanding Key Terms

– Beneficiary: In the context of shared ownership, a beneficiary is an individual who has the right to benefit from the shared ownership trust.
– Assured Shorthold Tenancy: This is a type of tenancy agreement that typically gives the landlord the right to regain possession of the property at the end of the rental period.
– Qualifying Body: This term refers to the organisation, such as a local authority or a housing association, that administers the shared ownership scheme.

Eligibility for the Scheme

For a person to qualify for the rent to shared ownership trust scheme, they must meet certain criteria:

– The scheme must allow individuals to apply to become beneficiaries, subject to the assessment of their financial situation.
– Alternatively, the individual may already have a right, through a contract or other agreement, to become a beneficiary of the shared ownership trust. For example, a signed but incomplete contract may still provide eligibility.

Treatment of Transactions

In the context of the rent to shared ownership trust scheme, specific transaction types are treated as separate and not linked. This means they are treated independently concerning Stamp Duty Land Tax (SDLT) implications under FA03/S108. The transactions that fall under this consideration include:

– The granting of an assured shorthold tenancy.
– The declaration of a shared ownership trust.
– Any other land transactions related to the scheme, such as options or agreements to purchase.

This separation helps clarifies the tax responsibilities and the timing of tax payment on each individual transaction.

Effective Date of the Declaration

When determining the effective date of the shared ownership trust declaration, any occupancy by the individual under the assured shorthold tenancy is not taken into account. This means that even if the individual starts living in the property after contracts are exchanged but before the trust is formally declared, the effective date will still be the date on which the trust is officially declared.

– For instance, if a person signs a contract on January 1, moves in on February 1, but the trust is declared on March 1, the effective date for tax purposes is March 1.

This principle prevents complications in the timing of tax liabilities and ensures clarity in the process.

Substantial Performance Considerations

It is important to note that substantial performance of the contract is not triggered if the individual already occupies the property under the assured shorthold tenancy before the contracts are exchanged. This means that tax implications related to substantial performance are postponed until certain conditions are met.

For example, if an individual has been living in a property and then the parties sign a contract, the exchange does not immediately trigger SDLT obligations.

Specific Implications for Shared Ownership Trusts

When engaging in the rent to shared ownership trust scheme, both the individuals involved and the qualifying body must understand the implications of the various transactions:

– Each stage of the process (from granting a tenancy to declaring a trust) has its own tax considerations.
– Understanding how these transactions are treated separately can help both parties effectively manage their tax liabilities.

Examples in Practical Context

To illustrate these principles, consider these practical scenarios:

– Scenario 1: A person applies for a rent to shared ownership scheme with a registered housing association and is assessed as eligible based on their income. They sign an agreement to become a beneficiary and receive an assured shorthold tenancy for the property. The tenancy is granted on January 10, but the shared ownership trust is officially declared on February 25. For SDLT purposes, the effective date of the trust is February 25.

– Scenario 2: Another individual is already living in a property under an assured shorthold tenancy. They sign a contract to become a beneficiary on April 1, but the shared ownership trust declaration doesn’t happen until May 15. Since the individual had already been in residence, the SDLT would be based on the effective date of May 15.

Through these examples, we can see the significance of the effective date and how transactions are treated distinctly within the shared ownership framework.

Conclusion on Treatment of Transactions

By clarifying these processes, the rent to shared ownership trust scheme aims to facilitate home ownership while ensuring that both the individuals involved and the qualifying bodies are aware of their rights and responsibilities. Understanding the transactional relationship and tax implications is crucial for ensuring compliance and successful navigation of the scheme.

For further assistance regarding specific cases and to explore these regulations in detail, individuals can refer to guidance documents like SDLTM0000.

Additionally, to ensure that you are fully aware of your rights regarding shared ownership and tenancy, you might consider reviewing SDLTM27077 for more targeted information on reliefs related to right to buy transactions, shared ownership leases, and rent to shared ownership trust schemes.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM27077 – Reliefs: Right to buy transactions, shared ownership leases etc: Rent to shared ownership trust: treatment of transactions FA03/SCH9/PARA14

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