Shared ownership of land or property can sometimes make tax payments more difficult to work out and play correctly. Not just this but it can be harder to know if you are due a stamp duty refund with shared ownership. In this piece, we will take you through the process of shared ownership and at which stages of ownership stamp duty land tax applies.
How To Pay Stamp Duty Land Tax In Shared Ownership
There are different ways of paying stamp duty land tax (SDLT) when you buy a property or land via a shared ownership scheme. An approved qualifying body must operate the scheme such as a local authority, a public sector organisation or a housing association. Approved qualifying bodies include:
- Local Housing Authorities
- Housing Associations
- Housing Action Trusts
- Northern Ireland Housing Executive
- Commission for the New Towns
- Development Corporations
You can only apply for a stamp duty shared ownership refund if one of these qualifying bodies grants you the shared ownership lease.
When you buy a property from a shared ownership scheme you should work out the stamp duty land tax each time you purchase a share in the property. The transactions you make to buy each share will count as linked transactions for stamp duty land tax purposes.
If you buy a share of a property via an approved shared ownership scheme, then you may have to pay SDLT. There are two ways you can choose to make payment, either in one full payment based on the total market value of the property (Market Value Election) or pay the due amount in stages.
If you choose to pay stamp duty land tax in stages, you pay anything that’s due on the total amount of the first sale. But you will not make any further instalments once you own 80% of the property shares.
If you decide to pay stamp duty land tax for shared ownership of the property in stages then you will pay less to begin with. You may have to make further payments if you increase your share of the property later.
Market Value Elections
When you make a market value election you make a one-off payment as if you had bought a freehold or leasehold property outright. The stamp duty land tax is based on the market value of the property at the time this is usually stated in the lease.
Once you have paid any stamp duty owed you won’t pay any more stamp duty land tax even if you buy more shares in the property at a later date, known as ‘staircasing.’
You should decide if market value election is your best option. It can be best to do this when the total market value of the property is no more than the threshold for paying stamp duty land tax.
Market Value Elections With A Freehold Lease
If there is a market value election where the lease allows you to have freehold of the property then HMRC will charge stamp duty land tax on the market value of the freehold. This refers to its value at the time of the first sale as stated in the lease.
For example; if the market value of freehold is £160,000 and you buy a 50% share for £800. You pay stamp duty land tax on the total market value of £160,000.
If you buy 100% of the property by gaining the freehold you must file a stamp duty land tax return for shared ownership to HMRC but you won’t pay any more stamp duty land tax.
Market Value Elections Without A Freehold Lease
f there is a market value election and the lease doesn’t allow you to have freehold of the lease then you will be charged stamp duty land tax on the open market premium which is the premium you would pay at the time of the sale for the largest share of the property that you can have under the terms and conditions of the lease.
Rent to Buy Schemes
If a first time buyer rents a property while they save up for a deposit, they might be able to use a rent to buy scheme. Under a rent to buy scheme you will rent the property out in a shorthold tenancy until you have saved enough money for a deposit and can afford to take on a shared ownership lease. HMRC will charge shared ownership stamp duty land tax on the lease when it’s granted you can choose to pay either in stages or in full.
Shared Equity Schemes
A shared equity scheme is another type of shared ownership. These schemes let you buy a property with the help of an equity loan which you repay when the property is sold. The buyer usually buys 100% of the property using a combination of the equity loan and their own funds such as a mortgage. You work out the payable shared ownership stamp duty rates on the total sale costs including the loan. Then you can later apply for a stamp duty shared ownership refund at a later date.
How Can CapEx Tax Help?
If you need to file a stamp duty shared ownership refund due to initial over payment then our tax specialists at CapEx Tax will help you through the process and guide you through collecting all the documentation and information that you need to make your stamp duty refund process as easy as possible. Get in touch with us today to allow us to help you in making a stamp duty shared ownership refund claim.