BN23: Stamp Duty Land Tax: relief for shared ownership trusts

Who is likely to be affected?

1. Individuals seeking affordable housing, especially those trying to buy properties that are in commonhold provided by qualifying bodies (see paragraph 10 below).

General description of the measure

2. Legislation included in Finance Bill 2007 will extend the same tax benefits for stamp duty land tax that are currently available for shared ownership leases to shared ownership trusts.

Operative date

3. The relief will apply to all transactions involving shared ownership trusts provided by qualifying bodies the "effective date" of which is on or after the date on which Finance Bill 2007 receives Royal Assent. The effective date is normally the date of completion, not the date of exchange, of contracts. However, the effective date may be earlier than the date of completion if the contract is "substantially performed", for example, if the purchaser takes possession or pays the purchase price in advance of completion. Most residential contracts will not be "substantially performed" in advance of completion.

Current law and proposed revisions

4. Currently Government offers support to those seeking to buy affordable housing through tax reliefs to some structures that help provide more affordable housing such as "shared ownership leases". Shared ownership leases provided by qualifying bodies receive favourable treatment for SDLT.
5. Tax relief for shared ownership leases works as follows - if a property is purchased by instalments, SDLT is payable on each instalment. However, with a shared ownership lease only the first and last instalments are normally chargeable. So if the buyer initially buys a 25% share the cost of this is chargeable to SDLT. But the buyer can then make capital payments to increase their share to 80% without incurring any further charge. Once the buyer’s share goes beyond 80% SDLT is again chargeable. In practice, however, it is rare for buyers to staircase above 80%. Alternatively, purchasers can elect to pay SDLT once and for all on the market value of the property or on the maximum share which can be purchased.
6. Shared ownership trusts have developed out of an interest in trying to use "commonhold" as a way of providing affordable housing. Commonhold is an alternative to leaseholds and has come into existence recently following the Commonhold and Leasehold Reform Act 2002.
7. Unfortunately shared ownership leases are not feasible for commonholds and therefore a new structure (shared ownership trusts) has had to be developed to make them an attractive option to those seeking affordable housing. With a shared ownership trust legal ownership is vested in trustees. There is a declaration of trust which gives the purchaser a beneficial share in the property, and the exclusive right to occupy the property in return for making regular payments. The purchaser can make capital payments to increase their beneficial share and so reduce their regular payments.
8. This relief extends the tax treatment set out in paragraph 5 above to shared ownership trusts. Establishing shared ownership trusts might appeal to those who wish to purchase types of housing where commonhold rather than traditional leases were being offered.
9. For the purposes of qualifying for reliefs from stamp duty land tax the following are considered to be qualifying bodies;

• a local housing authority
• a housing association
• a housing action trust
• the Northern Ireland Housing Executive
• the Commission for the New Towns
• a development corporation

Further advice

10. If you have any questions about this change, please contact the Stamp Taxes Helpline. Information about Budget measures is available on the HM Revenue & Customs website.