Stamp duty land tax (‘SDLT’) is complicated. But it’s essential for homebuyers and shared owners to have some understanding of the options available. Making informed choices could potentially save quite a lot of money.
This is the first of three articles. It explains what homebuyers need to know about shared ownership SDLT. The second article will cover what happens when owners of shared ownership homes staircase (purchase additional shares in their home). And the final article will explain the SDLT charge that arises when selling a shared ownership home.
HMRC’s guidance in this area is under review. The comments made in these articles are based on our understanding of HMRC practice. Solicitors should consider seeking specialist advice or making a request to HMRC for confirmation of their view of the legislation where appropriate.
All three articles were written by Sean Randall, in collaboration with Zahrah Aullybocus. Sean is a stamp duty expert and partner at Blick Rothenberg. Zahrah is a specialist consultant solicitor (and Shared Ownership Resources sponsor).
Do I have to pay stamp duty on a shared ownership home?
It depends…. HMRC charge SDLT at a nil rate when the total value of a residential property is below £250,000 (unless the higher rates for purchasing an ‘additional’ dwelling apply). However, if this applies to you, and you don’t need to pay SDLT, your solicitor will still need to submit a SDLT return if the purchase price is over £40,000.
Bear in mind that rules are regularly updated, so any examples given below may go out of date. Ask your solicitor to explain HMRC’s SDLT thresholds and rates at the time of your purchase.
What are my options if I have to pay SDLT?
If you buy a home through an approved shared ownership scheme, you must decide whether to pay SDLT:
- in one go (on the full market value), or
- in stages (so just pay on the price you are buying for).
Paying SDLT in one go
If you decide to pay SDLT in one go, this is called ‘making a Full Market Value election’. You’ll make a single upfront payment as if you’d bought a leasehold or freehold property outright. Consequently, your SDLT will be based on the current 100% market value of the property. This will be specified in your lease.
First-time buyers paying SDLT in one go are entitled to full relief (zero SDLT) on up to £425,000 or partial relief between £425,000 and £625,000. The relief is lost entirely if the price is over £625,000.
WORKED EXAMPLE:
40% share purchased for £206,000
Full market value of £515,000
If you’re not a first-time buyer, you won’t qualify for any exemptions. First-time buyer means a person who has never owned a property before here, or anywhere else in the world. The word “buyer” is therefore misleading. Someone who, say, inherits a property is not a first-time buyer even if they no longer own the inherited property.
SDLT is calculated on a tiered basis. The current rates of SDLT can be found on HMRC’s website: https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
Essentially, if you qualify as a first-time buyer:
- The first £425,000 of your transaction will be SDLT free.
- If you are buying for between £425,001 and £625,000, the relevant amount over £425,000 would be taxed at 5%.
Otherwise:
- The first £250,000 is tax free.
- The second tranche between £250,001 to £925,000 is taxed at a rate of 5% on the balance above £250,000. More rates and bands apply for slices of the price above £925,000.
Using the worked example above SDLT would be calculated as follows:
| Not a First-Time Buyer | First-Time Buyer | |
| Full Market Value Election (Payable on £515,000) | £0 – £250,000 (£250,000 taxed at 0%) = £nil £250,001 – £515,000 (£265,000 taxed at 5%) = £13,250 Total: £13,250 | £0 – £425,000 (£425,000 taxed at 0%) = £nil £425,001 to £515,000 (£90,000 taxed at 5%) = £4,500 Total: £4,500 |
| On Price Paid Only (Final calculation will depend on rent being included in the calculation, but gives you an indication of likely SDLT) | £0 – £250,000 (£206,000 taxed at 0%) = £nil Total: £nil | £0 – £425,000 (£206,000 taxed at 0%) = £nil Total: £nil |
If you make a market value election SDLT won’t be charged on the rent (see in a moment). Additionally, you won’t have to pay any further SDLT if you decide to buy more shares, or when you sell. Equally, if you don’t make a market value election and are a first-time buyer, SDLT won’t be charged on the rent.
How do I make a market value election?
Your solicitor should ask you which option you would like to select: a market value election or paying in stages. In your lease, the two options may look like this. Though bear in mind that older leases will be set out differently and/or have different terms.
Option A (Purchaser to Pay SDLT on 100% Value of Property):
- For the purposes of paragraph 4 of Schedule 9 of the Finance Act 2003 the Landlord and the Leaseholder confirm that the premium obtainable on the open market for the Premises (by reference to which the Premium is calculated) is the Initial Market Value and the minimum rent payable is the Minimum Rent and that the Leaseholder intends Stamp Duty Land Tax to be charged in accordance with the said paragraph 4 of Schedule 9 by reference to the Initial Market Value and the Minimum Rent.
Option B (Purchaser To Only Pay SDLT On % Share Being Purchased)
- The Landlord and the Leaseholder hereby confirm that the Initial Percentage is less than 80% as specified in paragraph 4A(2)(b) of Schedule 9 of the Finance Act 2003 and that the Leaseholder hereby confirms that they intend Stamp Duty Land Tax to be charged in accordance with paragraph 4A of Schedule 9 of the Finance Act 2003.
Make sure you’re clear about the pros and cons of each option before informing your solicitor which option you’ve chosen. Ask your solicitor if necessary.
If you choose the 100% market value election, then your solicitor will record this in your Stamp Duty Land Tax return, as well as in the lease. In theory, SDLT is a self-assessed tax. But don’t worry! Your solicitor will complete the return for you as the certificate generated by the ‘return’ is required to register the property at the Land Registry. You will need to approve the return by either signing a copy or confirming to your solicitor by email that the information in it is correct.
The SDLT return is particularly important where you’re purchasing your home with a mortgage. This is because your mortgage can’t be registered without a SDLT return.
(NOTE TO SOLICITORS: The HMRC SDLT return doesn’t easily allow recording of the election other than by entering the market value of the lease, rather than the price, as the consideration at Question 10 of the return. Consequently, Sean recommends sending HMRC a short letter to explain that the buyer has made a market value election in the return.)
Paying SDLT in stages
Although you have a choice whether to pay in one go or not, paying in stages is the default. In other words, failure to make the market value election will mean paying SDLT in stages.
In this case, the SDLT you pay is calculated on the market value of your initial % share. You might also need to pay additional SDLT on your rent if you are not a first-time buyer. This will be the case if the net present value of the minimum rent is over £250,000. (You’re probably asking yourself, what is ‘net present value (NPV) of rent’? NPV is the value – in today’s money – of future rent payments on shares still owned by the housing provider. The calculation takes into account estimated annual inflation in the future). Your solicitor will carry out this calculation and inform you how much SDLT you’ll need to pay. The rate of SDLT on rent is 1% on the NPV above £250,000.
Even if you buy more shares you won’t pay any more SDLT unless and until you staircase over 80%. We’ll cover this in the next feature: stamp duty and staircasing.
How do I choose whether to pay in one go, or in stages?
HMRC say: ‘You must decide if a market value election is your best option. It’s often best to do this when the total market value of the property is no more than the SDLT payment threshold.’ In that situation, a market value election would mean you’d benefit from zero SDLT on this particular property, now or in the future. (Zahrah recommends selecting this option if you qualify as a first-time buyer and the full market value is under £425,000.)
Your decision is more complicated if the total market value of the property is higher than the SDLT threshold. One advantage of paying SDLT upfront in one go is that the payment is done and dusted! On the other hand, you may find it too expensive to pay SDLT in one go upfront; even if it could cost you less over the longer-term than paying in stages.
How do I find out if I need to pay stamp duty on rent?
You will need to pay SDLT on rent when the net present value of your minimum rent payable over the lease term is over £250,000. You can check the net present value of your own minimum rent payable via HMRC’s online calculator.
Does it make any difference whether I’m buying a new-build or resale home?
If you buy a new-build home, it’s your decision whether to pay SDLT in one go, or in stages. However, a market value election can only be made on the grant of the lease (i.e. sale of a new build) and not on assignment of the lease (i.e. a resale).
This means that, if you’re purchasing a resale, you’re bound by the decision of the first purchaser. The good news… If the first purchaser made a market value election, the benefit ‘runs with the lease’ when it is sold on. So long as a market value election was made, and a statement is included within the lease itself to confirm, no further SDLT would be payable by you on staircasing over 80%.
Does it make any difference if my partner has their own property?
Yes. You might not own an ‘additional’ dwelling. But if you are married, or in a civil partnership with someone that does, HMRC treat you effectively as if you were ‘one’ person. You could therefore face a surcharge (this is an extra 3% payable in addition to any existing amount!). In some cases, you might be able to reclaim the surcharge. Make sure you discuss this with your solicitor.
If you are in the process of a divorce or separation please speak to your solicitor as there are yet more rules and exemptions that can be applied – it will need to be considered on a case-by-case basis.
I travel a lot for my job. Would that make a difference to my SDLT?
A 2% surcharge would apply if you have not been present in the UK for at least 183 days in the 12 months before completion. In some cases, you might be able to reclaim this surcharge. Make sure you discuss this with your solicitor.
Does it make any difference if there are equity caps on staircasing?
No. The rules set out above regardless of any caps on staircasing containing in the lease. Special SDLT treatment doesn’t apply.
Updated 11 October 2022 to reflect Government changes to SDLT.
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I‘m selling my shared ownership flat and staircasing to 100% as it is out of nominations. This staircasing is a paper exercise, and I will receive my share (40%) at completion. My solicitor tells me I must pay stamp duty. This means stamp duty will be paid twice on this transaction. Is this correct? Thanks.
Thanks for your query. This is the first of a 3-part series on shared ownership and stamp duty land tax (SDLT). The third feature will cover SDLT when selling (whether selling a part-share, via simultaneous sale and staircasing to 100%, reverse staircasing, or a transfer of equity). Watch this space!
In my view, your solicitor is wrong and stamp duty relief is available. You could pay the duty and revisit this after completion provided you do so within one year of completion. You’re entitled to claim the relief retrospectively up to one year after completion. I say this simply if time is of the essence.
Hello,
I’m purchasing a shared ownership and my solicitor told me he doesn’t know how to calculate the NPV of the property as the rent will change, and we can only “estimate”. Could you please advise how to calculate it?
Hello, Thanks for your query. Stamp Duty Land Tax (SDLT) on SO homes is complex! In fact, SO generally is complex. It’s one of the reasons I’d always recommend homebuyers use an independent solicitor who is experienced in SO.
Regarding NPV, it would be calculated on the minimum rent stated in the lease, per the Finance Act 2003 Schedule 9 para 4(4)(a): https://www.legislation.gov.uk/ukpga/2003/14/schedule/9.
Your solicitor should seek advice from HMRC as required – via the HMRC manual or the HMRC Helpline. (You could also call the Helpline yourself if you have concerns about your solicitor’s calculations).
This is a link to HMRC’s information on ‘Stamp Duty Land Tax on Leasehold sales’: https://www.gov.uk/guidance/stamp-duty-land-tax-leasehold-purchases. It includes information on calculating the NPV of rent, with a worked illustration.
Your solicitor might be able to obtain support from someone more senior in their firm. If they’re not operating as part of a firm, they might be able to seek advice from a professional conveyancing network such as Bold Legal Group: https://www.boldgroup.co.uk/.
Hope this is helpful. Good luck! Please do let me know how you get on.
I’ve read this article, and understood it to mean that SDLT is not payable on the rent for first-time buyers. Can you please advise if this is correct, as our solicitor believes it is payable.
Just to clarify, we are buying a new-build and choosing not to pay the full market election. The share being purchased amounts to £140k, so SDLT isn’t payable on that amount. However, our solicitor says we have to pay SDLT on the rent.
Thanks for your question. I’ve checked this with co-author Sean Randall (a stamp duty expert and partner at Blick Rothenberg). His view is as below:
“If a market value election is made, or first-time buyer relief is available and claimed, no SDLT would be due on the rent.
(Bear in mind that ‘first-time buyer’ means a person who has never owned a property before here, or anywhere else in the world. The word “buyer” is therefore misleading. Someone who, say, inherits a property is not a first-time buyer even if they no longer own the inherited property).”
I hope this is helpful, and wish you good luck with your purchase.
Hi Sue, your response is very much appreciated. I refer to the section above, titled, ‘PAYING SDLT IN STAGES’ (which I am). It goes on to say:
“In this case, the SDLT you pay is calculated on the market value of your initial % share. You might also need to pay additional SDLT on your rent if you are not a first-time buyer.”
Am I misunderstanding this ? A) I am paying in stages B) I am a FTB in the true sense of the word – I read this as additional SDLT may be payable if you are NOT a FTB, ie: not if you are a FTB???
much appreciated
Regarding SDLT on rent for FTB: I note your website alludes to there is NO SDLT to pay on rent for FTB, however my solicitor completed the online HMRC SDLT form, which calculated a payment being due on the rent.
I personally consulted the gov.uk website and completed their online calculator for SDLT, which confirmed a ZERO amount being due, but the solicitor has said they are not tax experts and had to be guided by the form they complete – despite being recommended to me as S/O specialists.
I called HMRC to query this and the colleague kindly went through the online SDLT calculator with me and confirmed the same outcome: ZERO SDLT due on the rent (the share purchase is already below the threshold for SDLT). He suggested that the solicitors may not have updated the forms being used as they changed in September 2021 to include a field that asked if the purchase was either ‘residential’ or ‘non residential’ – I can confirm their forms are updated and it does, in fact, include this field.
So I called HMRC again – through to a different colleague, who advised that the online web calculator for SDLT should override the return forms the solicitors complete to submit to HMRC to register the SDLT !?!?!?! He advised that the figures should be taken directly from the calculator on the Gov.uk website and manually inputted onto their returns form.
Confused, perplexed and slightly frustrated – obviously I don’t want to do anything wrong, but this is so unclear and the advice HMRC personnel are giving leaves me wondering how many are being incorrectly charged SDLT on rents that they shouldn’t be????
Hi, just wanted to express a huge thank you to Sean Randall and the Sharedownershipresources.org site for solving my issue for me. Sean, of Blick Rothenberg, was kind enough to call and email me to clarify my exact position succinctly, which I hadn’t managed to achieve with my solicitor until this point. It was interesting to learn, but also troubling to learn, that many FTB are probably paying SDLT that they shouldn’t be. I strongly recommend any FTB to use the Government’s online calculator as this is more accurate than the online forms the solicitor is required to file! Again, a very sincere thank you and high recommendation for the knowledge of Sean Randall at Blick Rothenberg.
Thank you for your kind comments. I’m so pleased that Sean and Shared Ownership Resources were able to resolve your query.
Though, as you point out, it is very troubling that so many solicitors are apparently offering poor, and potentially incorrect, advice. It’s long overdue for HMRC to clarify their guidance, and to take steps to ensure it is followed. It’s also hard to understand why regulatory bodies in the conveyancing sector are apparently allowing poor performance to pass unchallenged..
If your shared ownership property is the first and only property you own, are you still considered a first-time buyer when you purchase more shares?
I bought 35% a few years ago, and I am pretty sure I only paid stamp duty on that share and not the full amount. I was a first time buyer, but the property price was over £300,00.
Now, the price has fallen, and it is only valued at £300,000. At the moment I am only staircasing to 50%, so I don’t need to pay further stamp duty, as I understand it, but what if I want to staircase to 80% or more in the future? Would I then still be eligible for no stamp duty as the property would be only £300,00 and under the first time buyer threshold, or would I not count as a first time buyer any more as I already own some of the property? I realise that the value might change in the next couple of years of course and go above that amount, and also I think the thresholds are changing now anyway, but the question still stands in theory: if the property price is still under the threshold for first time buyers at the point where I might be able to staircase to 100%, would I still qualify? thanks
Thanks for your query, Allegra. As a matter of interest, was your home a new-build? New-builds attract a premium, so the value can actually go down in the short-term (It’s the same principle as if you buy a brand-new car; it’s worth a lot less the second you pay for it and drive it off the forecourt….).
Back to your SDLT question. Sean and Zahrah wrote a second feature (link below) in which they cover SDLT on staircasing. They explain the calculation used, and give some worked examples. As you say, this doesn’t kick in till you get to 80%. (On the assumption you didn’t make a full market value election). It also explains that, as you suspected, you are no longer a first-time buyer so won’t be eligible for first-time buyer relief when you staircase.
Sean has confirmed in the comment below.
https://www.sharedownershipresources.org/an-expert-on/stamp-duty-staircasing/
The relief is not available on staircasing >80%. You are no longer a FTB.
thanks very much for your reply. I suspected I might not be considered a first time buyer as a result, even though this is the first and only property I’ve ever had. I’m pretty sure I didn’t make a full market value election, although I don’t know how I’d actually find out for sure, but looking at the transfers I made to the solicitors, it looks like only a smaller amount at the time. I wish I had understood more about what sort of a decision I was making at the time.
Yes it was a new build flat, and I’m not surprised the value has gone down for lots of reasons; I had hoped to be able to staircase to 100% while the value was lower but it was still out of reach, and with the way interest rates are going, it will likely stay that way. I’d hoped maybe some of the new announcements on stamp duty might make a tiny difference at least, but it doesn’t sound like it.
Hi Allegra, Shared ownership and SDLT are both complicated in their own right. Personally, I believe that entrants to the shared ownership scheme need better information from conveyancing solicitors (about the SDLT options) and from housing providers (about the relationships between SDLT options and the different pathways through shared ownership, whether staircasing and/or hoping to make a gain on sale).
Hello, thank you for your article apologise for asking but all this is new to me.
My case is a bit more complicated and tried to use the SDL calculator but I am not confident if filled form correctly. I bought 30% shares for £69k back in 2013 from a previous owner, and we pay rent approx. £6k per year on remaining 70% shares, until we do not staircase to 100%. 30% shares were bought as a single owner, although I was married but it was quicker and easier as we fought against the time to obtain mortgage under single name. Back in 2013 me and my husband were classified as the first time buyers.
During covid my father passed away and left me a small flat abroad, which by the country law where the flat is located I am a single owner as it can be only pass to children not to their spouses.
Now, we are buying remaining shares of 70% for a £192.5k (where 100% shares are valued for £275k) New mortgage will be on both our names and we become a joint tenant after transaction (transfer of deeds).
Could you kindly advise how much we would have to pay STDL and how this will be calculated? We are not changing our main residence but just buying the remaining shares. Both of us are UK residents.
Lease says that stamp duty will be payable on the ‘’market value of the property is the initial market value as defined in the lease and that the leaseholder intends stamp duty land tax to be charged in accordance with Section 2 schedule 9 finance act 2003 by reference to the said market value’’.
Thanking you in advance.
Hi Edith, Thanks for your query. Please see below for Sean’s response.
Hi Edith – if the property has been your main home continuously for the last three years and your lease has more than 21 years to run, which are both strong assumptions based on what you’ve said, then no SDLT will be payable. This is because an exception will apply to the surcharge for purchases of “additional” dwellings due to the fact that you already have an interest in the purchased dwelling. Your ownership of the overseas flat will be disregarded. This means that the £192.5k will fall within the nil rate band for standard-rated transactions (£0-£250k). Only a nil SDLT return will be due. (I assume your husband does not own any other dwelling.)
It’s worth noting that for anyone buying a home where staircasing is restricted to 80% – say, in a ‘designated protection area’ – there would be no point making a market value election. If you did, you’d pay SDLT on the market value without the advantage of preventing an SDLT charge on staircasing above 80%, because you can’t!.