HMRC SDLT: SDLTM29885 – Interaction with Shared ownership – Paying SDLT in Stages

Principles and Concepts of SDLT on Shared Ownership

This section of the HMRC internal manual provides guidance on paying Stamp Duty Land Tax (SDLT) in stages for shared ownership properties. It outlines key principles and concepts involved in the process.

• Understanding SDLT obligations when purchasing shared ownership properties.
• Explaining the option to pay SDLT in stages as equity is acquired.
• Clarifying the financial implications of staged payments.
• Providing examples and scenarios for practical understanding.
• Highlighting legal requirements and compliance measures.

Understanding SDLT for Shared Ownership

When buying a property through shared ownership, you may choose to pay Stamp Duty Land Tax (SDLT) in stages. This approach can affect the SDLT rates you pay, particularly for first-time buyers. Here we break down the key ideas and principles involved in this process.

What is SDLT?

Stamp Duty Land Tax (SDLT) is a tax that is payable when you buy a property or land in England and Northern Ireland. The amount of SDLT you pay depends on the purchase price of the property. For first-time buyers, there are certain reliefs available that may help reduce the overall tax amount.

Paying SDLT in Stages

If you opt to pay SDLT in stages when purchasing a shared ownership property, the tax applies only to the purchase price of your initial share, referred to as the premium. This means that you do not have to pay SDLT on the total market value of the property, only on the amount you are actually purchasing.

Eligibility for First-Time Buyer Relief

To qualify for first-time buyer relief when paying SDLT in stages, the following criteria must be met:

• The market value of the property must be £625,000 or less.
• The relief applies only to the initial transaction when the lease is granted.
• If you are a first-time buyer, no SDLT will be due on rental payments associated with the shared ownership lease.

Example to Illustrate

Let’s consider a practical example to highlight how this works:

• A first-time buyer purchases a 40% share in a property priced at £450,000.
• The buyer pays £180,000 for this share, known as the premium.
• Since the total market value of the property is £450,000 and is below the £625,000 threshold, the first-time buyer relief applies.
• No SDLT will be due on the £180,000 that the buyer has paid for the initial share.
• Although SDLT could potentially be applicable to the rental payments, since the buyer is claiming first-time buyer relief, no SDLT will be due on those payments either.

Understanding the Impact of Shared Ownership

Shared ownership allows buyers to purchase a fraction of a property and pay rent on the remaining part. This approach can make home ownership more affordable, especially for first-time buyers. However, it’s important to understand how SDLT works in these situations.

Key Points to Remember

• When choosing to pay SDLT in stages, you only pay tax on the share you actually buy, not the full value of the property.
• You must meet the conditions for first-time buyer relief to avoid SDLT on both the purchase and rental payments.
• The SDLT relief only applies when you make the initial purchase and will not cover subsequent transactions or additional shares.

Next Steps

Before proceeding with a shared ownership purchase, ensure that you clearly understand your rights and responsibilities regarding SDLT. It may also be helpful to consult with a financial advisor or tax professional to ensure that you are taking advantage of all available reliefs and managing your tax obligations effectively.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM29885 – Interaction with Shared ownership – Paying SDLT in Stages

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