Read the original guidance here:
HMRC SDLT: SDLTM29880 – Interaction with Shared ownership – Market Value Election

Market Value Election and Shared Ownership

This article explains how a market value election works in relation to stamp duty land tax (SDLT) for shared ownership properties. It outlines important principles, provides examples, and clarifies how relief applies in these cases.

What is a Market Value Election?

A market value election is a choice made by buyers of shared ownership properties that allows them to base certain tax calculations on the full market value of the property rather than just the amount they pay for their share. This can be beneficial when looking at potential stamp duty tax savings.

How Does SDLT Work for First-Time Buyers?

Stamp duty land tax (SDLT) is a tax that buyers must pay when purchasing property or land in the UK. However, there are specific reliefs available for first-time buyers. When first-time buyers make a market value election, they can take advantage of these reliefs when calculating the SDLT owed.

First-Time Buyers’ Relief

First-time buyers are eligible for SDLT relief on properties costing up to £625,000. This relief reduces the amount of stamp duty that must be paid, making it easier for first-time buyers to enter the property market.

How the Relief Works:

• The relief applies to the relevant consideration based on the property’s market value if a market value election is made.
• No SDLT is due on any rent payments made under the lease of the shared ownership property.

Example of Market Value Election

To illustrate how a market value election works, let’s walk through a detailed example:

• A first-time buyer purchases a 50% share of a shared ownership property for £225,000.
• The total market value of this property is £450,000.
• The buyer opts for a market value election, meaning SDLT calculations will be based on the total market value of £450,000 instead of just the £225,000 paid for the share.

Calculating SDLT with Relief

Since the market value of the property is below the £625,000 threshold for first-time buyers’ relief, the buyer can benefit from this relief.

• The SDLT is calculated as follows:
• No SDLT is charged on the first £425,000.
• 5% SDLT is charged on the remaining £25,000 (which is the portion of the market value that exceeds £425,000).
• This results in a total tax liability of:

0% on the first £425,000 = £0
5% on the next £25,000 = £1,250

Hence, the total SDLT paid by the first-time buyer in this scenario is £1,250.

Further Purchases and SDLT

It’s important to note that if the buyer later purchases additional shares in the property or decides to buy the property outright, they won’t have to pay any further SDLT on those transactions. This can significantly reduce the overall costs associated with home ownership.

Rental Payments

Additionally, for first-time buyers who are purchasing shared ownership properties, it is essential to know that no SDLT is charged on rental payments made under the leasing terms of the shared ownership scheme. This means that while the buyer may have ongoing rental costs, these will not contribute to any SDLT liabilities.

In Summary

Understanding the process of making a market value election can lead to significant savings on SDLT for first-time buyers in shared ownership schemes. By opting for this election, buyers ensure that they are taxed on the total market value, enabling them to benefit from available reliefs. This makes home ownership more accessible, lowering initial financial barriers to entering the property market.