How does stamp duty work on shared ownership properties?

Stamp Duty Land Tax (SDLT) is a government charge that is due on any property that has a value of over £300,000 (for first-time buyers) or £125,000 for non-first-time buyers. You will pay tax on proportions of the property’s value that exceeds this amount. But how does it work with a shared ownership scheme?

What is shared ownership?

Shared ownership schemes are aimed at first-time buyers and single professionals and give you a helping hand to get on the property ladder. You can purchase a percentage of property available under this scheme and pay rent on the portion you do not own. You can then buy a greater share or all of the property in the future.

You can learn more about shared ownership in our Guide to Shared Ownership.

How Stamp duty is paid on shared ownership schemes

You can pay stamp duty on the full amount of the property or just the stamp duty for the share/percentage you buy. These options are called Market Value Election and Staircasing:

  • Market Value Election: You pay a one-off lump sum of stamp duty based on 100% of the property’s market value.
  • Staircasing: You pay stamp duty on the proportion of the property you buy. If you buy a larger share of the property in the future, and your ownership percentage exceeds 80%, then you will pay the stamp duty due on all portions purchased after your initial purchase.

The pros and cons of Market Value Election

This option is less common. You pay stamp duty on the share you own and the percentage you do not yet own. Stamp duty is calculated against the current full market price of the property. This means you will have more stamp duty to pay today. However, there will be no stamp duty to pay when you purchase a greater share of the property in the future. On the flip side, you could use the amount you would spend on stamp duty today to buy a larger share of the property.

There are pros and cons of Staircasing

This option is more common. You pay stamp duty on the share you buy at the outset. If you make a future purchase that takes you over 80%, you pay stamp duty on that transaction’s value. There may also be a stamp duty charge on the rent payable over the lease term, which is called the net present value. The stamp duty calculations are complicated, and you should seek professional advice to help you determined how much you will need to pay.

Stamp duty holiday

The stamp duty holiday introduced by the government in response to the coronavirus pandemic is coming to an end on the 31st of March 2021. The holiday means paying stamp duty only if the property’s value exceeds £500,000. There will be no stamp duty extension, but you might be able to beat the stamp duty holiday deadline with a bridge loan or bad credit bridging loan. Bridge loans are short-term financing solutions that can be arranged quickly and are accessible to those looking for shared ownership, with a mortgage arranged at a later date to replace the bridging loan.

For further assistance or advice on bridging loans, give the Friends Capital team a call.