Autumn Budget 2018: welcome news for shared ownership purchasers

Comment01 Nov 2018Suzanne Benson

The extension of stamp duty exemptions to more first-time buyers of shared ownership properties fixes an existing anomaly, but may create another, observes Suzanne Benson

Suzanne Benson

Monday’s Budget contained the welcome news that the previous anomaly preventing many first-time buyers of shared ownership properties from accessing the benefit of the first-time buyers’ Stamp Duty Land Tax (SDLT) exemption has now been recognised and fixed. This news will be welcome both to purchasers and to providers of new-build shared ownership properties – and demonstrates that the government has listened to the many voices in the sector who have pushed for this change in the past 12 months.

While the headline is good news, communicating the change may be a challenge, and the news brings forward a number of questions.

The full detail of the supporting legislation will be published shortly, but in the meantime further guidance has been issued by the Treasury in its overview of tax changes.

So what do providers, recent purchasers and potential buyers need to know?

Prior to Monday’s Budget, first-time buyers of shared ownership properties were eligible for SDLT relief under the first-time buyers’ exemption if their property was valued up to £300,000, and they chose to make a market value election (MVE). In making an MVE, purchasers choose to pay SDLT in relation to the full value of the property rather than just the initial share they were buying.

Purchasers of qualifying shared ownership leases (broadly those granted by local authorities and registered providers) had the option to make an MVE at the outset rather than just pay SDLT on the initial share, and if they chose to do so they wouldn’t pay any further SDLT if they staircased at a later date. For properties valued at £300,000 or less, we would therefore have expected all first-time buyers of shared ownership leases to be advised to make an MVE and take advantage of the exemption.

Prior to this week’s Budget, the SDLT exemption could not be used in relation to the value of just the initial share bought. This meant that for properties valued over £300,000, the purchaser would have the choice of either paying tax on the full market value of the home above £300,000 (with the reduced rate applying up to £500,000) or electing to pay SDLT on the initial share (the normal rates would apply to this) and to pay further SDLT in the future if they choose to staircase. As with other properties on the market, no SDLT relief was available for properties with a value above £500,000. This arguably put many shared ownership purchasers at a disadvantage and excluded them from the exemption.

What has changed?

Following on from the announcement, the first-time buyers’ SDLT exemption can apply to either a market value election or a purchase of a first share. From the available information, it would appear that the position outlined above in relation to MVEs will not change.

What is new, however, is the ability for first-time buyers to choose to pay SDLT on the initial share only and, provided the initial share has a value of less than £300,000 with an overall property value of £500,000 or less, the SDLT exemption will apply and no SDLT will be payable.

The Treasury has stated that the relief will also be available for any portion of the SDLT calculation which would otherwise be attributable to the rent to be paid, and that the exemption will not be available for future staircasing transactions. Properties with an overall value of more than £500,000 will continue to be subject to the normal SDLT rules.

What about first-time buyers who have already bought and paid SDLT?

The government has made the unusual move of backdating this change and enabling purchasers who have bought shared ownership properties since 22 November 2017 and paid SDLT in circumstances where they would now be covered by the exemption, to apply for a refund.

Affected purchasers will have a 12-month window from 29 October 2018 to amend their return and apply for a rebate from HMRC.

Will this apply to all shared ownership purchases?

The Treasury guidance indicates not. The previous exemption only applied to ‘qualifying shared ownership leases’ – those granted by local authorities, ‘not-for-profit’ RPs and ‘for-profit’ RPs, in the limited circumstances where the unit in question has been funded with grant. The Treasury guidance continues to use this term, suggesting that shared ownership leases granted by private bodies and for-profit RPs without the benefit of grant funding will remain outside of the exemption.

This does create an uneven result, which is surprising in the wider context of the government consultation on private shared ownership published alongside the Budget. It is reasonable to expect that this issue will be high on the list of issues raised by the private sector in response.

Suzanne Benson is partner at Trowers & Hamlins