Direction Law: Stamp Duty Land Tax Holiday extension
How does the extended deadline impact shared owners and first time buyers?
Stamp Duty Holiday
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. On July 8th 2020 the Chancellor announced a ‘Stamp Duty Holiday’, which as of the Budget on March 3rd 2021 has now been extended beyond its original deadline. In this article Andrew Theoff, Managing Partner of Direction Law, looks at how this works and how it affects purchasers of Shared Ownership properties.
SDLT is currently not payable on all purchases up to £500,000 and reduced on higher priced properties, meaning that the tax payable on property purchases completed prior to June 30th 2021 is much less.
For purchases which complete between July 1st 2021 and September 30th 2021, the nil rate band is reduced from £500,000 to £250,000, and from October 1st 2021 SDLT rates will revert to those previously in force, meaning that only the first £125,000 is exempt from SDLT.
| Full Market Value | New Rates until June 30th | Rates July 1st – 30th September 2021 | Standard Rates from October 1st 2021 |
| Up to £125,000 | 0% | 0% | 0% |
| £125,001 – £250,000 | 0% | 0% | 2% |
| £250,001 – £500,000 | 0% | 5% | 5% |
| £500,001 – £925,000 | 5% | 5% | 5% |
Note: From July 1st 2021, the special rules and rates for first time buyers apply, including first time buyers purchasing a property through the Shared Ownership scheme.
How does this affect different types of Shared Ownership purchase?
Resale purchase
SDLT is paid on the price of the share you buy. With the new changes this means that you now pay zero Stamp Duty if your share price is less than £500,000 (which will generally be the case). This is therefore good news for many resale buyers and will remain good for many such buyers between July and September if their share price is below £250,000.
New Shared Ownership Lease
If you are purchasing a new build property or if you are being granted a Shared Ownership lease of a previously rented property, the Stamp Duty changes are more significant.
When purchasing a new Shared Ownership lease, you can pay SDLT either on the full market value or on the share premium 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 only on the premium/rent, you may have to pay SDLT in the future when you staircase.
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 and you complete before the end of June.
The big change therefore is not just that buyers will pay no SDLT, but that they will be able to benefit from an exemption on future staircasing transactions. This is most relevant in the period to the end of June, making buying a new build Shared Ownership property before then an even more attractive proposition than it was before, but in some areas may continue to be a benefit through until the end of September.
Staircasing
The Stamp Duty holiday also affects how much SDLT is payable by shared owners who are staircasing.
For interim staircasing transactions (the purchase of any share up to 80%) no Stamp Duty is paid, 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, if you are final staircasing where SDLT was only paid on the share when the lease was first granted, you are 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 as it depends the price of 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 Stamp 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 October 1st 2021.
However, it is worth noting that due to the high volume of buyers and sellers in the UK right now, as well as the effects of the pandemic, there is a significant backlog in arranging mortgages and valuations and most local authorities are taking longer than usual to process searches, and therefore transactions are taking longer than usual to process.
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 Direction Law for a quotation. You can obtain an instant quote at directionlaw.co.uk or you can contact our new business team by calling 0800 158 8281 or emailing [email protected].
Every year Direction Law acts for thousands of conveyancing clients. As well as dealing with traditional conveyancing we have large specialist teams dealing with all aspects of affordable housing, Shared Ownership and newbuild properties. For further information visit directionlaw.co.uk or for an instant quotation call 0800 158 82 81.
Share to Buy is a one stop shop for affordable homes. On our website, you can search for properties, compare mortgages and find out all you need to know about alternative home buying schemes such as Shared Ownership and Help to Buy via our FAQs and guides.