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How does the stamp duty holiday affect shared ownership?

Adrian Moloney | 30.11.2020

Shared ownership can often be misunderstood, overlooked or considered as an option of ‘last resort’. However, it’s becoming increasingly popular for those looking to get onto the housing ladder over the last few years, especially given the current climate where high LTVs are becoming a thing of the past.

While some aspects of it are definitely more complicated and need further consideration than a straightforward residential purchase, our new series of articles attempts to dispel some myths and answer some questions to help your potential shared ownership clients.

Our first article concentrates on the stamp duty question, a timely consideration given the current holiday in place until March next year.

Should my clients be taking advantage of the stamp duty holiday and purchasing now?

While the stamp duty holiday (no SDLT due on the first £500,000 of the property value) has come as welcome relief for those looking to move house or buy their first property, many may not realise that the stamp duty rules are slightly different when it comes to shared ownership.

When you purchase a shared ownership property, you may have to pay SDLT depending on the value. There are two ways to pay:

  • Make a one-off payment based on the total market value of the property
  • Pay any SDLT due in stages as you staircase to own more shares

Some buyers may opt to pay the full SDLT on the entire value at the point of sale, in case the value increases and they plan to staircase later on.

Therefore, during the current holiday, your client could opt to “pay” the full amount of tax when they purchase their first share (and this amount will be “zero” until the end of March 2021).

However, it’s worth noting that while you can choose to pay SDLT on anything that’s due on the first sale amount, then further SDLT in stages, you won’t make any further payments until you own more than an 80% share of the property1.

As little as 2.3% of those buying shared ownership end up actually staircasing to 100% (around 4,000 households staircased to 100% ownership in 2018/192), so while your client could take advantage of the current tax holiday, they may not face a huge difference in tax if they don’t purchase before March.

In fact, the Government is introducing changes from next April, meaning that the minimum initial share you can buy will reduce from 25% to 10%3, providing a further incentive to those struggling with deposits.

Keep an eye out for further articles in our myth-busting series, including whether Help to Buy or shared ownership is best for your client, the advantages and disadvantages of staircasing and whether the process is more involved from a broker’s point of view than a standard purchase.

You could help your first-time buyers get on the mortgage ladder with our shared ownership mortgage range.

1. You can find out more information on this, including a SDLT calculator, on the Government website https://www.gov.uk/guidance/sdlt-shared-ownership-property

2. https://commonslibrary.parliament.uk/research-briefings/cbp-8828/

3. https://www.gov.uk/government/news/jenrick-unveils-huge-12-billion-boost-for-affordable-homes

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