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HMRC SDLT: Shared Ownership Leases: Stamp Duty Land Tax and Linked Transactions Explained

Guidance on Shared Ownership Leases and Stamp Duty Land Tax (SDLT)

This guidance provides information on the treatment of shared ownership leases and how linked transactions affect the stamp duty land tax (SDLT) owed when acquiring additional ownership in a property.

Understanding Linked Transactions

The term “linked transactions” relates to multiple transactions connected to the same property. This includes the grant of a shared ownership lease and any staircasing transactions, which refer to the purchase of additional shares in the property. According to FA03/S108, all transactions related to a shared ownership lease are considered linked.

• For example, if someone buys a 50% share in a property and later decides to buy the remaining 50%, both transactions are linked.
• The rate of SDLT applied to staircasing transactions is based on the total consideration from all linked transactions.

Rules for Linked Transactions

The rules about linked transactions do not apply in certain cases:

• If the shared ownership lease began on or after 12 March 2008, the higher rates of SDLT will not be applied retrospectively to the initial lease grant, as outlined in FA03/SCH9/PARA4B.
• If a staircasing transaction is exempt from SDLT under FA09/SCH9/PARA4A, the linked transactions rules will not apply retrospectively.
• If the original lease was granted before the Finance Act 2003 came into effect on 1 December 2003, staircasing transactions may still be linked to that lease.

Election to Pay Stamp Duty on Market Value

If an election was made to pay stamp duty based on the market value of the property when the original shared ownership lease was granted (in accordance with section 97 of the Finance Act 1980), there would be no SDLT due on the staircasing transaction.

When Staircasing Transactions Are Not Linked

A staircasing transaction may not be linked to the original lease if:

• A reversionary interest (the right to take back possession of the property) is transferred to a landlord who has no connection to the original landlord.
• The shared ownership lease is assigned (transferred) from the original lessee to someone who has no connection to the original lessee.

Example Case: Mr. Rogers and Shared Ownership

To illustrate how these rules work, consider the case of Mr. Rogers:

• In March 2001, Mr. Rogers purchased a 50% share in a £150,000 property as part of a shared ownership scheme.
• He paid £75,000 for his share and pays £2,000 annually in rent for the remaining 50%.

Calculating Mr. Rogers’ Initial Stamp Duty

When he initially bought his share, Mr. Rogers paid stamp duty as follows:

• 1% on the purchase price of £75,000 = £750
• 12% on the annual rent of £2,000 = £240

Hence, the total stamp duty he paid was £990.

Staircasing Transaction in January 2024

Fast forward to January 2024, Mr. Rogers plans to purchase the remaining 50%, fully owning the property. At this time:

• Mr. Rogers still owns no other properties.
• The property is now valued at £400,000.
• He will pay £200,000 for the additional 50% share.

Understanding Linked Transactions in This Case

The payments Mr. Rogers made—£75,000 in 2001 and £200,000 in 2024—are linked transactions.

Calculating SDLT for the Staircasing Transaction

The SDLT owed for this staircasing transaction is calculated based on the combined purchase prices:

• First, add together the amounts paid: £75,000 (initial purchase) + £200,000 (staircasing) = £275,000.
• Then, calculate the notional SDLT due on £275,000, which according to SDLT rates applicable in January 2024 amounts to £3,750.

Now, to determine the SDLT owed for the staircasing transaction:

• Use the formula: (£200,000 / £275,000) x £3,750 = £2,727.

This means Mr. Rogers will owe £2,727 in SDLT for his staircasing transaction in January 2024.

Adjustments Due to Rate Changes

It is important to note that the SDLT due may change if the SDLT rates change. Therefore, it is always advisable to use the most current SDLT rates when making calculations.

Further Resources

For additional examples and detailed calculations on how much SDLT to pay when purchasing property through a shared ownership scheme, you can visit here.