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Paying in Stages
Most people buying a shared ownership property this will be the most commonly used method to pay your stamp duty; however make sure you don't get caught out in the complexities of the calculation you have to pay if you are buying a new lease (new build).
Stamp duty isn't just calculated on the consideration you pay for your share
You'll need to pay stamp duty land tax on the consideration paid (your share of the property) and, if you have a new lease, the 'net present value' of the rent you pay to the housing association over the full term of your lease.
When working out what stamp duty to pay when paying in stages you'll need to calculate two sums if it is a new lease, or just the consideration on your share, if it is a resale.
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Consideration on your share
The is the simple part of this calculation. You apply the standard rate of stamp duty applicable for the share you own. In the example above, it'd be 50% of £350,000 which is £175,000. The SDLT due on this is £1,000 (that's 0% on £125,000 and 2% on £50,000). If you are eligible for First Time Buyer Relief then you can apply the relief to here, but not on the Net Present Value of Rent.
- This applies to both new build and re-sale shared ownership properties.
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Net Present Value of rent
This is the complex part of the calculation as you pay 1% stamp duty above £125,000 of the net present value of the rent you pay to the housing association over the full length of your lease (definition of net present value: the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest).
- This only applies to new build new leases.
In the example above, if for example the housing association charge 3% of the share they own of £175,000, then the rent is £5,250. If you have a 100 year lease, using the complex net present value formula, the total rent is £147,965 for which you pay £229 stamp duty (that's 0% on £125,000 and 1% on £29,965).
This means the total amount due to pay for stamp duty is £1,000 + £229 which comes to £1,229.
* You should always speak to HMRC if you have a stamp duty query.
How is the rent calculated on the Housing Association's share?
The housing association set the rent based on a percentage of their share of the property; most housing associations charge 3%.
In the example above we saw how on a £350,000 property where you buy 50%, the balance owned by the housing association is £175,000 which means they will charge you an annual fee of £5250 which is £437.50 per month.
Stamp duty on staircasing
Read our second article to find out about – Stamp Duty Land Tax for Staircasing
Which housing associations can you buy a shared ownership through?
- Local housing authority
- Housing association
- Housing action trust
- Northern Ireland Housing Executive
- Commission for the New Towns
- Development corporations
*Fixed Fee – No Sale No Fee – On all Major Lender Panels