Shared ownership stamp duty: staircasing

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Are you considering staircasing? Do you know whether or not you’ll need to pay stamp duty (also known as stamp duty land tax or ‘SDLT’) on staircasing? Read on.

This is the second of three articles. 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).

In the first article we explained what homebuyers need to know about SDLT when buying a shared ownership home. This article covers what happens when owners of shared ownership homes staircase (purchase additional shares in their home). The final article will explain the SDLT charge that arises when selling a shared ownership home

Do I have to pay SDLT on staircasing?

It depends… In our first SDLT article we explained options for people buying a new-build shared ownership home. In particular, whether to pay SDLT in one go upfront, or to pay in stages. Paying SDLT in one go upfront is referred to as making a ‘market value election’. Say you bought a new-build, and made a market value election, then there would be no further SDLT to pay on staircasing.

On the other hand, perhaps you bought a resale property… In that case, the answer depends on which option the original buyer chose. If they made a market value election, before selling their share to you, the benefit of the election ‘runs with the lease’. (So long as a statement is included within the lease itself to confirm the market value election). That means that you enjoy the same benefit even though you didn’t actually make the market value election yourself.

Unfortunately, a market value election can only be made when the property is first purchased, not on a re-sale of the property. You can’t select market value election on a re-sale shared ownership home if it wasn’t made originally.

Paying in stages: when do I start paying SDLT?

If you’re paying SDLT in stages, you’ll make your first payment when you buy the initial share – in other words when the lease is granted. No further SDLT is due unless and until you staircase over 80%.  This includes, for example, where your premium is over £40,000.

Paying in stages: how much SDLT do I pay when I staircase over 80%?

Paying SDLT on staircasing is only relevant where:

  • a market value election was not made, and
  • the staircasing transaction results in the buyer owning more than 80% of the property.

To calculate the tax (assuming the lease was granted on or after 12 March 2008): 

(i)         Establish what you paid initially for your purchase and all previous staircasing transactions (if any);

(ii)        Confirm how much you are paying for the next share to take it over 80%;

(iii)       Add these amounts (above) to calculate how much you have paid for the property altogether (including any previous staircasing transactions);

(iv)       Calculate the SDLT payable on the total at the rates in force at the date of the latest staircasing transaction;

(vi)       Find a fraction of the SDLT. The relevant fraction is the amount paid for the latest staircasing transaction divided by the total amount paid.

Staircasing Stamp Duty – Example 1

Andy acquires a shared ownership lease of a new-build house for a term of 125 years in July 2019. He is unmarried and is not a first-time buyer.

Portrait of man looking thoughtfully out of window to illustrate staircasing stamp duty feature.

Andy does not make a market value election. He pays £175,000 for a 50% share. The monthly rent is £438. The amount of SDLT payable initially is £1,000: (£125,000 @ 0%) + (£50,000 @ 2%). The net present value (calculation required by HMRC to determine the rental income of the lease over its lifetime) of the minimum rent does not exceed £125,000; hence, no SDLT is due on the rent.

Andy then staircases to 100% in October 2022, paying £200,000. The amount of SDLT payable is based on the total amount paid for the lease and the staircasing transaction, £375,000 (£175,000 + £200,000).  So first we work out what the SDLT due on £375,000 would be at the current rates (assuming there is no change in SDLT rates): this is £6,250. The first £250,000 of the £375,000 is taxed at 0% and the final £125,000 of the £375,000 is taxed at 5%.

But only part of the £6,250 is payable – the part attributable to the staircasing transaction that resulted in Andy owning more than 80%. In Andy’s case it is £3,333. The relevant part is found by dividing the price paid for the relevant staircasing transaction by the total amount paid: (£200,000 / £375,000) x £6,250. This means that £3,333 of SDLT is payable on the staircasing transaction within 30 days of the transaction. (Note this is a different deadline to the usual 14-day deadline for filing an SDLT return and paying SDLT.)

Check your lease date

Slightly different rules apply if the lease was granted before 12 March 2008.

Staircasing more than once over 80%

Staircasing more than once over 80% may mean paying further SDLT on the previous chargeable staircasing transaction(s), see below.

Staircasing above 80% on sale of the property

No SDLT is generally payable on staircasing above 80% in conjunction with a sale of the property. This will be explained in the third article.

Staircasing Stamp Duty – Example 2

As for Example 1, but this time Andy staircases twice, initially to 75% paying £90,000 in October 2021 and then to 100% in October 2022 paying £110,000.

No SDLT is payable on the first staircasing transaction, as it does not result in Andy owning more than 80%. The amount of SDLT payable on the second staircasing transaction is based on the total amount paid for the lease and the two staircasing transactions, £375,000 (£175,000 + £90,000 + £110,000).

So first we work out what the SDLT due on £375,000 would be at the current rates (assuming there is no change in SDLT rates): this is £6,250, as for Example 1. But only part of the £6,250 is payable – the part attributable to the staircasing transaction that resulted in Andy owning more than 80%. In Andy’s case it is £1,833. The relevant part is found by dividing the price paid for the relevant staircasing transaction by the total amount paid: (£110,000 / £375,000) x £6,250. This means that £1,833 of SDLT is payable on the second staircasing transaction within 30 days of the transaction.

Staircasing Stamp Duty – Example 3

As for Example 1, but this time Andy is a first-time buyer.

He pays no SDLT on the grant of the lease because the amount paid (£175,000) is below £300,000 (the nil-rate band threshold when first-time buyer relief is clamed). And if the net present value of the rent had exceeded £125,000, then the relief would have exempted the charge on rent too.

When Andy staircases, the tax is calculated as in Example 1 and Example 2. He cannot claim first-time buyer relief on staircasing and his prior claim for the relief is irrelevant when calculating the SDLT due on staircasing.

What if I staircase more than once above 80%?

For the first staircasing transaction over 80%, see the answer immediately above. For any further staircasing transactions, the same steps need to be followed: find the SDLT payable on the total amount paid using the rates in force at the relevant date and find the fraction of the SDLT attributable to the staircasing transaction. The SDLT paid on any earlier chargeable staircasing transactions needs to be reviewed and any further SDLT chargeable needs to be paid.

Staircasing Stamp Duty – Example 4

As for Example 1, except Andy staircases twice (having paid the initial purchase price of £175,000): once to 85% paying £125,000 in October 2021 and again to 100% in October 2022 paying £55,000.  

First Staircasing

The amount of SDLT payable on the first staircasing transaction is based on the total amount paid for the lease and the first staircasing transaction, £300,000 (£175,000 + £125,000). The SDLT due on £300,000 (at the SDLT rates in force at October 2021) is £5,000. The first £125,000 of the £300,000 is taxed at 0%, the next £125,000 of the £300,000 is taxed at 2% and the final £50,000 of the £300,000 is taxed at 5%.

The part of the £5,000 payable on the first staircasing transaction is £2,083: (£125,000 / £300,000) x £5,000. This means that £2,083 of SDLT is payable on the first staircasing transaction within 30 days of the transaction.

Second Staircasing

The amount of SDLT payable on the second staircasing transaction is based on the total amount paid for the lease and the two staircasing transactions, £355,000 (£175,000 + £125,000 + £55,000). The SDLT due on £355,000 (at the SDLT rates in force at October 2022) is £5,250. The first £250,000 of the £355,000 is taxed at 0%, and the final £105,000 of the £355,000 is taxed at 5%. The part of the £5,250 payable on the second staircasing transaction is £813: (£55,000 / £355,000) x £5,250. This means that £813 of SDLT is payable on the second staircasing transaction within 30 days of the transaction.

The SDLT due on the first staircasing transaction now needs to be reviewed. The part of the £5,250 payable on the first staircasing transaction is now £1,848: (£125,000 / £355,000) x £5,250. As £2,083 was paid on the first staircasing transaction, no further amount of SDLT is payable. Note that it is not possible to reclaim the difference between the SDLT due (£1,848) and the SDLT paid (£2,083)..

If SDLT was paid on the rent because the net present value of the rent exceeded £125,000, the buyer cannot reclaim SDLT on the rent when they staircase to 100%. It is irrelevant that the amount of rent payable reduces or the lease ends on staircasing. In other words, the SDLT on the net present value of the rent is calculated based on the assumption that the rent will be payable for the term of the lease. The rent reduction or lease termination consequential on staircasing does not entitle the buyer to a repayment of the SDLT on rent.

First-time buyer relief is available if the amount initially paid does not exceed £625,000 (see above). Again, the relief must be claimed in the SDLT return. If the buyer staircases, it is irrelevant that more than £425,000 (the threshold for the nil rate band) or £625,000 (the absolute threshold for the relief) is paid in total: the relief is not withdrawn.

Do I need to inform HMRC when I staircase?

It depends….

If you haven’t made a market value election, AND you are staircasing above 80%, you must inform HMRC via an SDLT return. But staircasing below or up to 80% is not notifiable, even if the amount paid is above £250,000 (the SDLT nil rate threshold).

How do I tell HMRC about a staircasing transaction?

In theory, SDLT is a self-assessed tax. But don’t worry! Your solicitor will complete a SDLT return for you.

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: There are no HMRC codes specific to staircasing transactions. The return must be completed as if an existing lease of the property is bought for the purchase price save that the transaction will be ‘linked’ to the initial purchase of the lease and any earlier staircasing transactions. It will not, therefore, be obvious from the SDLT return that the return relates to a staircasing transaction and it would be prudent to send HMRC a short explanatory letter.


Updated 11 October 2022 to reflect Government changes to SDLT.


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12 Comments

  1. Katrina
    August 2, 2022
    Reply

    Thanks so much for this. This is the first article I’ve ever found that actually explains clearly how stamp duty works for shared ownership.

    • Sue
      August 2, 2022
      Reply

      Many thanks, Katrina. I’m glad you found the feature useful. I’ll pass your comment onto Sean and Zahrah.

  2. Kevin
    August 26, 2022
    Reply

    This is very helpful! In the case of example 2, wouldn’t HMRC view transaction 2 and 3 as linked transaction, and ask for additional tax on transaction 2 (that was ‘avoided’ because it did not result in Andy owning >80%) to be paid at the time of transaction 3?

    • Sue
      August 26, 2022
      Reply

      Thanks for your query, Kevin. Sean has responded below.

  3. Sean Randall
    August 26, 2022
    Reply

    Hi Kevin – Good question. The two transactions would be “linked”, which means paying tax on 3 based on the total of the price paid for 2 and 3, and finding a fraction of the tax attributable to 3, but it doesn’t mean that tax is due on 2 because the transaction (staircasing up to 80%) was not chargeable. In other words, 3 doesn’t make 2 chargeable – rather 2 remains exempt.

  4. Iulian
    October 25, 2022
    Reply

    By far the best article out there on staircasing. Unfortunately I still can’t quite work out what would be the SDLT in our situation. We’ve bought a 40% share in re-sale flat in October 2017 (£136,000 for 40% share) and we now want to staircase to 100% (£189,000 for 60% share).
    This bit is easy (136000+189000-250000)*189/325=£2,180 SDLT due.

    However… The lease was granted in May 2006 and the previous owner paid around 80k for the 40% share so no stamp duty was due.

    Is there any additional SDLT payable by us? As in are these transactions considered linked in any way for stamp duty purposes?

    • Sue
      October 25, 2022
      Reply

      Thanks for your comment, Julian. Glad the feature was helpful. Regarding your own situation, Sean and Zahrah talked about SDLT on staircasing in resale homes in their previous feature on SO and SDLT. (https://www.sharedownershipresources.org/an-expert-on/shared-ownership-stamp-duty/)

      They said: “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 … on staircasing over 80%.”

      So you’ll need to check with your solicitor whether a market value election was made by the initial purchaser – and, if so, whether a statement is included within the lease itself – to confirm to see whether you will need to pay any SDLT on staircasing to 100%. Hope this is helpful.

  5. Ginny
    January 9, 2023
    Reply

    Hello, I contacted my solicitor who I used to purchase a 40% share in a shared ownership property some 21 years ago and they have said they do not have a record of this and cannot help me. I was shocked at their response.

    I told my current solicitor and they seem equally relaxed about it and said it looks as if I paid the full market valuation from the stamp duty stamp on the lease. Is there nothing like a certificate for this from HMRC or a record on file? It seems strange not to get confirmation from the solicitor who complete the purchase on my behalf.

    Thanks for your article and any help on this.

    • Sue
      January 15, 2023
      Reply

      Thanks for your query, Ginny. First off, it’s not at all unusual for solicitors not to keep files for 21 years. When it comes to residential conveyancing the Law Society don’t specify exactly how long files should be kept. But it seems that it’s good practice to keep sales files for a minimum of 6 years and purchase files for 15 years. Ultimately, the lease itself should be the key source of information.

      You mention that you bought your SO property some 21 years ago. Stamp Duty Land Tax (SDLT) replaced Stamp Duty 20 years ago, in 2003.

      Tax firm Cornerstone explains key differences between Stamp Duty and SDLT as follows: “Stamp Duty derived its name from the physical act of a stamp being placed on the title documents of the property to affirm that the duty had been paid – until this stamp was placed, the transaction was not deemed legally effective. SDLT retains the ‘Stamp’ part of the name despite the fact that stamping has nothing to do with the process; though you may still hear some solicitors and other property professionals talking about ‘stamping documents’, it no longer happens. SDLT also differs in that it is a self-assessed tax against the purchaser, rather than a tax on documents like the old Stamp Duty. The similarity in name has led to much confusion on the part of laymen and professionals since SDLT was introduced. To this day, many solicitors assume that SDLT operates in the same way as the old Stamp Duty, and are unaware of many of its inherent complexities as a result.”. (https://ctatax.uk.com/what-is-stamp-duty/)

      What does this mean for you? I’m afraid I don’t know. But I hope this information will help you have a more informed conversation with your own solicitors about the Stamp Duty stamp on your lease. Perhaps as to whether your original purchase was made under the previous Stamp Duty tax or the more recent Stamp Duty Land Tax (SDLT)? And, if the previous system, whether or not this gives rise to any complications given transitional arrangements from Stamp Duty to SDLT? (Hopefully not!)

      Please do let me know how you get on. I’d be interested to hear the outcome.

  6. Confused
    January 29, 2023
    Reply

    Hello, this is by far the best article on stamp duty and staircasing, much better than HMRC’s own guidance, so I feel in the right place to ask this question.

    I am about to staircase to 100%, from 60% – having simultaneously bought a 25% share as a resale from the previous leaseholder, and 35% from the housing association, in 2016.

    My current solicitor says that the transaction between me and the previous leaseholder does not count as a “linked transaction” for the purpose of SDLT – only the two transactions to the housing association (35% on initial purchase and the 40% final staircasing).

    I understand from the HMRC website that transactions can be linked not only if they involve the same people, but also if they are part of the same “scheme” or part of a series of transactions. I would assume that the fact that all three are for the same property, this would establish a link between the transactions.

    If only transactions 2 and 3 are linked, it means the apportionment of SDLT to the final staircasing transaction is greater (40 / 75 as opposed to 40 / 100).

    What is your opinion; would the transaction to the previous leaseholder count as a linked transaction?

    • Sue
      January 30, 2023
      Reply

      Hello ‘Confused’,

      I’m glad you found the article useful. Thanks for the feedback, and for your query. I’ve checked with Sean Randall and his view is as below.

      “75 (35 + 40) would be taxed as a single SDLT transaction and the remainder (25) would be taxed as a separate SDLT transaction. Whether this is a scheme (etc) within the meaning of the rules is uncertain but this is academic because the test has two limbs and your facts would fail the second limb. The second limb requires the parties (here the sellers) to be the same or connected persons. In this case, the seller of the lease is not the same as or connected with the housing association.”

  7. Confused
    January 30, 2023
    Reply

    Hi Sue!

    Thank you for your rapid response… and once again a much clearer response than I have received elsewhere.

    In that case, does that mean I overpaid SDLT on my first transaction? (ie simultaneous purchasing of 25% from previous leaseholder, and staircasing an additional 35% share on the same day)

    My solicitor at the time (2016) calculated the SDLT as if they were one single transaction. Total transaction on that date was £255k, SDLT paid £2,750.

    I want to satisfy myself that I am not paying the same SDLT twice.

    Best wishes,
    (Slightly less) Confused

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