Stamp Duty Land Tax ‘Holiday’

Andrew Theoff, Managing Partner:

This month Andrew Theoff, Managing Partner, looks at how the “Stamp Duty holiday” announced on 8^th July by the Chancellor works and how it affects purchasers of shared ownership properties.

What is Stamp Duty?

Stamp Duty Land Tax to give it it’s full title (generally shortened to SDLT) is a tax payable on the purchase of a property. Until 8^th July 2020 the rates were:

The change announced in the “summer statement” was to make the first £500,000 zero rated for all buyers, with 5% being charged only on the portion above that (higher rates are payable on higher priced properties but those rates are unlikely to be relevant to those buying shared ownership).

The Stamp Duty holiday only applies to property purchases completed prior to 31^st March 2021, after which the SDLT rates revert to those previously in force.

How does this affect different types of shared ownership purchase?

Resale purchase

SDLT is paid on the price of your share. Therefore, the change means that you pay zero duty if your share price is less than £500,000 (which will generally be the case) whereas previously you would have to pay SDLT on any purchase above £125,000 (or £300,000 if you were a first time buyer). This is therefore good news for many resale buyers.

New Shared Ownership Lease

If you are purchasing a new build property or if you are being granted a shared ownership lease of a property that had previously been rented, the stamp duty changes are much more significant.

When purchasing a new shared ownership lease, you can elect to pay SDLT either on the full market value or on the premium paid for the share and the rent you are paying. If you pay on the full market value, you are exempt from paying SDLT on any future staircasing transactions (staircasing is when you buy further shares in the property). However, if you pay SDLT on the premium/rent you may end up having to pay SDLT in the future when you staircase.

Under the old rules there were many purchasers who paid on the premium / rent, which in the case of many first time buyers would have been nil if the premium was under £300,000, but could not afford to pay on the full market value. With the changed rules, there will be many more buyers for whom the full market value option is now affordable, or even free if the full value of the property is less than £500,000.

The big change for many new build buyers therefore is not just that they will pay no SDLT when they buy, but that they will be able to benefit from an exemption on future staircasing transactions. This makes buying a new build shared ownership property before 31^st March 2021 an even more attractive proposition than it was before.

Staircasing

The Stamp Duty holiday also affects how much SDLT is payable by shared owners who are staircasing.

No stamp duty is paid on any interim staircasing transaction (the purchase of any share up to 80%), nor on a final staircasing (the purchase of any share more than 80%) if it was paid on the full market value basis when the lease was first granted. However, anyone final staircasing on a property where SDLT was only paid on the premium when the lease was first granted is liable to pay SDLT on the final share price.

Where SDLT is applicable, the calculation of the amount due on staircasing transactions is very complex and is something outside the scope of this article, as it depends on how much was paid for the initial share, any intermediate shares and the final share and the proportion that each bear to the other. However, the temporary ‘stamp duty holiday’ means that many shared owners who staircase will end up paying less or no duty when some would have been paid before.

As such, now would be a really good time for anyone who can afford to do so to staircase, as the old rules will come back into play from 1^st April 2021.

What to do next?

If you are thinking of buying a shared ownership property or are an existing shared owner thinking of staircasing, please contact us for a quotation. You can obtain an instant quote by clicking here or you can contact our new business team by calling 0800 158 8281 or emailing enquiries@directionlaw.co.uk.