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How Stamp Duty Land Tax reform could be good news for Shared Ownership home buyers

11 December 2014

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December’s Autumn Statement introduced a new approach to Stamp Duty Land Tax (SDLT), which could help put money back into the pockets of Shared Ownership buyers and make buying a home more affordable.

Chancellor George Osborne’s announcement, that SDLT, which is payable upon residential property transactions, would move from a ‘slab tax’ to a ‘banded’ or ‘stepped’ approach as of December 4, could make a significant difference in terms of lowering the cost of buying a home. 

So what does this actually mean and what difference could it make to you if you’re thinking about buying a home?

Under the previous system, the ‘slab’ approach, the SDLT was structured so that you pay the tax rate as a fixed percentage across the whole of the value of your home purchase so, for example, if you bought a home worth £350,000 you would pay its 3% SDLT rate across the whole of the £350,000, which means SDLT would have cost you £10,500. Under the new system, the SDLT is banded – which means you don’t just pay the rate that applies to the full value but that you pay the SDLT rate appropriate to each step in value.

Taking our £350,000 example, you would now pay 0% tax on the value of the home up to £125,000, 2% on the part of the value between £125,000 and £250,000 and 5% on the part of the value of the home between £250,000 and £350,000, bringing down the cost of the SDLT by £3,000 to £7,500.

How does SDLT work with Shared Ownership?

We often get asked this question in show homes and at the events we attend and will usually advise that buyers take detailed financial and legal advice before making a decision about what to pay. The basics are as follows:

  • Shared Ownership buyers can either elect to pay SDLT once based on the full market value of their home (known as a ‘full market election’), or;
  • Shared Ownership buyers need only pay SDLT based on the value of the share in the home that they are buying and then do not need to pay SDLT again until they have staircased to the point where they own more than an 80% share.

So, if the share you are buying in your home has a value of less than £125,000 you need not pay any SDLT upon your initial purchase and on shares valued at more than £125,000, you only pay SDLT on that share value above that threshold and not the whole amount - making a big difference to the cost of buying your first home and getting onto the property ladder.

Related reading...

The Government guides to the new SDLT system:

https://www.gov.uk/government/publications/rates-and-allowances-stamp-duty-land-tax/rates-and-allowances-stamp-duty-land-tax

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382324/Stamp_Duty_15.pdf

HM Treasury Fact Sheet on the changes:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382324/Stamp_Duty_15.pdf

HMRC guidance on SDLT for Shared Ownership:

http://www.hmrc.gov.uk/sdlt/calculate/shared-ownership.htm

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