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Overview

There are different ways of paying SDLT when you buy a property through a shared ownership scheme. An approved qualifying body, for example a housing association, local authority and certain other public sector bodies must operate the scheme.

Approved qualifying body

The different ways to opt to pay SDLT only apply if an approved qualifying body grants you the shared ownership lease. These are:

• local housing authority
• housing association
• housing action trust
• Northern Ireland Housing Executive
• Commission for the New Towns
• development corporations

When you buy a property from a shared ownership scheme, you work out SDLT each time you buy a share of the property. The transactions count as linked transactions for SDLT.

How to work out SDLT

When you buy a share in a property through an approved shared ownership scheme, you may have to pay SDLT. There are 2 ways to pay:

• make a one-off payment based on the total market value of the property
• pay any SDLT due in stages

If you decide to make a one-off payment up front, this is making a 鈥榤arket value election鈥� for SDLT.

If you choose to pay SDLT in stages, you pay anything that鈥檚 due on the first sale amount. But then you don鈥檛 make any further payments until you own more than an 80% share of the property.

You can choose which option鈥檚 best for you, depending on your circumstances.

These examples are for transactions that take place on or after 4 December 2014 and use the rates that apply on or after that date.

Market value election

When you make a market value election, you send a return and make a one-off SDLT payment as if you鈥檇 bought a freehold or leasehold property, outright, from the start. The SDLT is based on the market value of the property at the time, this is stated in the lease.

Once you鈥檝e paid any SDLT due, you won鈥檛 pay any more on the property sale. This is even if you 鈥榮taircase鈥� your ownership in several stages (because you buy a bigger share in the property later on).

You must decide if a market value election is your best option. It鈥檚 often best to do this when the total market value of the property is no more than the SDLT threshold for paying SDLT.

If the lease gives you the right to have the freehold

If there鈥檚 a market value election where the lease lets you have the freehold to the property, then HMRC charge SDLT on the market value of the freehold. This is its value at the time of the first sale, as stated in the lease and usually applies to houses.

Example

The market value of the freehold is 拢140,000 and you buy a 50% share for 拢70,000. You pay SDLT on the total market value of 拢140,000. You pay SDLT at 0% on 拢125,000 and 2% on 拢15,000, a total 拢300 in SDLT.

If the lease doesn鈥檛 give you the right to have the freehold

If there鈥檚 a market value election and the lease doesn鈥檛 let you have the freehold to the property, HMRC charge SDLT on the 鈥榦pen market premium鈥� This is the premium you鈥檇 pay at the time of the sale for the largest share of the property that you can have under the terms of the lease.

If you bought the largest share you can, the 鈥榥et present value鈥� of the rent that you鈥檇 pay under the lease also counts. This is based on the total amount of rent that you鈥檇 pay over the term of the lease. You鈥檒l only pay tax on the rent when it鈥檚 a large amount.

The market value election deadline

Make a market value election when you send in the SDLT return, or make the election up to 12 months after the return deadline (the 鈥榝iling date鈥�) by amending the return.

The market value election when you buy a further share in the property

If you buy a property under a shared ownership scheme and you make a market value election, you can get a further share of the property but you won鈥檛 pay any more SDLT.

If you buy 100% of the property by getting the freehold, you must fill in an SDLT return to tell HMRC, but you won鈥檛 pay any more SDLT.

Paying SDLT in stages: first transaction

If you decide to pay any SDLT due in stages, you鈥檒l pay less to begin with. You may have to make further payments if you increase your share of the property later.

First transaction - base SDLT on the amount you pay

At first, HMRC charge SDLT on the premium you paid for the grant of the lease.

Example

The market value of a property is 拢140,000 and you buy a 50% share for a premium of 拢70,000 There鈥檚 no SDLT to pay on the premium because its value is below the current SDLT threshold of 拢125,000. You must still tell HMRC about it by filling a return.

If the market value of the property had been 拢280,000 and you bought a 50% share for a premium of 拢140,000 you鈥檇 pay SDLT on the premium. This is because the value of the premium is above the SDLT threshold. If you were granted the lease on or after 4 December 2014, the amount of SDLT you鈥檇 pay in this case would be 0% of 拢125,000 + 2% of 拢15,000, totalling 拢300.

If there鈥檚 a high annual rent

If there鈥檚 a high annual rent under the terms of the lease, the rent鈥檚 net present value counts when you work out how much SDLT to pay at first.

Paying SDLT in stages and buying further shares

If you buy more shares in a property, called 鈥榮taircasing鈥�, until your share reaches more than 80%, you don鈥檛 pay any more SDLT or tell HMRC about the transactions in a SDLT return. This is whether or not you paid any SDLT on the first transaction.

Once your share of the property goes over 80%, fill in a return and pay any SDLT due on both:

• the transaction that took you over 80%
• any further transactions

The amount of SDLT due is based on the total amounts you鈥檝e paid for the property so far. This is because the transactions count as linked transactions for SDLT.

This also means that in some cases you pay tax (or more tax) on the first grant of the lease.

This doesn鈥檛 include staircasing payments that don鈥檛 take your share of the property over 80%. But if the first grant of the lease took place on or after 12 March 2008, this transaction is excluded because it doesn鈥檛 count as linked with the rest of the transactions.

Example of SDLT and staircasing

You first buy a 25% share in a property and 鈥榮taircased鈥� your share to 75%, you won鈥檛 pay any SDLT on the staircase transaction no matter how much it was worth. But if you increase your share from 25% to 85% in a single transaction, you pay any SDLT due on the value of that staircase transaction.

Work out the rate of SDLT due on any further transactions to increase your share of the property in the same way.

Examples

Example 1

On 1 March 2008 you spend 拢80,000 on a 50% share in a property with a total market value of 拢160,000.

You later buy a further 25% share in the property for 拢40,000, taking your share to 75%. On 5 December 2014, you buy the final 25%, including the freehold, for 拢40,000. You become the outright owner of the property.

The SDLT you pay on the third transaction is 拢175 - that鈥檚 the total consideration of 拢160,000 at 0% on 拢125,000 and 2% on 拢35,000 which is 拢700 apportioned 1:4.

You鈥檒l also pay 拢800 on the first lease premium, because this is linked with the later transactions. You fill in a further return under section 81A Finance Act 2003.

SDLT due on the various transactions summary

Share of the property owned after the latest transaction	Amount paid for the latest transaction	Total amount paid to date - used to work out the rate of SDLT	SDLT payable	Is an SDLT return needed?
50%	拢80,000	拢80,000	zero	yes
75%	拢40,000	拢120,000	zero	no
100% including getting the freehold	拢40,000	拢160,000	拢175	yes

Additional tax calculation

Tax on the 拢80,000 lease premium is due at the time of the third transaction. This is because the transactions are linked for SDLT. The total consideration for all the linked transactions is now more than the 0% SDLT threshold. This tax is calculated under the rules which applied at the date the lease was granted, so the tax due is 1% of 拢80,000 = 拢800.

Example 2

On 1 March 2012 you spend 拢75,000 on a 25% share in a property. It has a market value of 拢300,000.

On 5 December 2014, you increase your share in the property to 85% at a cost of 拢180,000. Sometime later you pay 拢30,000 for a further 10% share, and later still, 拢15,000 for the final 5% share.

The SDLT you鈥檒l pay on the second transaction is 拢1,941 (total consideration of 拢255,000 at 0% on 拢125,000, 2% on 拢125,000 and 5% on 拢5,000 = 拢2,750, apportioned 180:255).

The SDLT you鈥檒l pay on the third transaction is 拢447 (total consideration of 拢285,000 at 0% on 拢125,000, 2% on 拢125,000 and 5% on 拢35,000 = 拢4,250, apportioned 30:285).

You鈥檒l pay a further 拢743 on the second transaction and HMRC need another return under section 81A Finance Act 2003. There鈥檚 no further tax to pay on the first transaction as this doesn鈥檛 count as a linked transaction.

The SDLT you鈥檒l pay on the fourth transaction 拢250 (total consideration of 拢300,000 at 0% on 拢125,000, 2% on 拢125,000 and 5% on 拢50,000 = 拢5,000, apportioned 15:300).

You鈥檒l pay a further 拢316 on the second transaction and 拢53 on the third transaction. Send further returns under the rules set out in section 81A FA 2003. There鈥檚 no further tax to pay on the first transaction as this doesn鈥檛 count as a linked transaction.

SDLT due on the various transactions summary

Share of the property owned after the latest transaction	Amount paid for the latest transaction	Total amount paid to date - used to work out the rate of SDLT	SDLT payable	Is an SDLT return needed?
25%	拢75,000	拢75,000	zero	yes
85%	拢180,000	拢255,000	拢1,941	yes
95%	拢30,000	拢285,000	拢447	yes
100% including getting the freehold	拢15,000	拢300,000	拢250 (plus additional tax for transactions 2 and 3, 拢743 + 拢316 + 拢53 = 拢1,112)	yes

Additional tax calculation

拢180,000 (transaction 2) 梅 拢285,000 (total paid transaction 3) x 拢4,250 (tax due on total consideration) = 拢2,684.

Tax due on transaction 2 = 拢2,684.

Tax paid to date on transaction 2 = 拢1,941.

Additional tax to pay on transaction 2 = 拢743.

Example 3

You first spend 拢60,000 on a 50% share in a property with a market value of 拢120,000 and make a market value election.

Later, you increase your share in the property to 60% at a cost of 拢12,000.

Later you pay 拢12,000 for a further 10% share, and later still 拢24,000 to increase your share to 90%. Finally, you pay a 拢12,000 to buy the final 10% share.

SDLT due on the various transactions summary

Share of the property owned after the latest transaction	Amount paid for the latest transaction	Total amount paid to date - used to work out the rate of SDLT	SDLT payable	Is an SDLT return needed?
50%	拢60,000	拢60,000	zero	yes
60%	拢12,000	n/a	zero	no
70%	拢12,000	n/a	zero	no
90%	拢24,000	n/a	zero	no
100% including getting the freehold	拢12,000	n/a	zero	yes

Rent to HomeBuy schemes

If a first time buyer rents a property while they save up for a deposit, they may be able to use a 鈥楻ent to HomeBuy鈥� scheme. Under the scheme, you rent a property under an assured shorthold tenancy until you鈥檝e saved enough money for a deposit and can afford to take on a shared ownership lease.

HMRC charge SDLT only on the shared ownership lease when it鈥檚 granted.You can choose to pay either in stages or as a one-off payment.

Fill in the SDLT return

Fill in the SDLT return online, or fill in the paper SDLT return.

Read on how to complete a return for staircase transactions.

Shared equity schemes

These schemes let you buy a property with the help of an equity loan, which you repay when the property鈥檚 sold. Examples are First Buy and the First Time Buyers Initiative. The buyer usually buys 100% of the property using a combination of the equity loan and their own funds, for example a personal mortgage. You work out SDLT on the total sale, including the loan. You fill in a SDLT return and pay in the usual way.