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Stamp Duty and Shared Ownership

View profile for Nicki Davis
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In November last year, Philip Hammond announced in his Budget the abolishment of Stamp Duty for first time buyers; but where does it leave those first time buyers looking to buy a property through shared ownership?  Nicki Cox, one of our Senior Conveyancers who specialises in Shared Ownership purchases, explains here what shared ownership is, and why the exemption may not apply.

What is shared ownership?

Shared ownership on a property means that a buyer will own a portion of the property while paying rent on the rest, which is normally owned by a housing association or local authority landlord.  “Shared ownership schemes can make home ownership more accessible for lower-income households in particular as it can be more cost effective than renting,” explains Nicki.  “The buyer would pay just a 5% deposit on their share of the property, and a mortgage that covers 25% to 75% of the property value, with rent paid on the remaining share.”

First time buyers qualify for shared ownership as long as their household earns less than £80,000 per year, or £90,000 in London. 

Stamp Duty and Shared ownership

Following the Budget in November last year, first time buyers are now exempt from paying Stamp Duty if their property is valued under £300,000.  For those properties priced between £300,000 - £500,000, the first £300,000 is taxed at 0% with the rest taxed at 5%. 

There are two options for paying Stamp Duty when buying through shared ownership;

  • the first is to pay for the Stamp Duty due on the whole value of the property upfront,
  • the second to pay just on the share of the property they own, but then pay for the rest of the market value as and when they buy the rest of the property. 

Most shared ownership buyers choose the first option to protect themselves against any property price rises in the future.   

“The complication has arisen for those looking into shared ownership because both options are likely to result in them being required to pay Stamp Duty,” continues Nicki.  “For those who wish to pay Stamp Duty just on their share, the exemption is not an option at all, and for those who wish to pay upfront, it is likely the property value will fall outside of the £300,000 exemption.  A buyer purchasing half of a £400,000 home for example will still pay around £5,000 in Stamp Duty even though they are only buying £200,000 of equity.  It is true that this is more likely to be a problem in areas such as London where housing prices are inflated, however it is something that the government needs to address in their housing strategy as shared ownership properties do tend to be at the higher end of the market.”

Nicki concludes, “Since the announcement on 22nd November, it’s reported that 16,000 first time buyers have saved money from the abolishment of Stamp Duty.  This is why there are now calls from several organisations and government groups to extend the exemption to shared ownership.  People choose shared ownership for a reason; because they are struggling to afford a home outright.  These are the very people Mr Hammond was aiming to help when he abolished Stamp Duty and so consideration needs to be given to give them the same opportunities as other first time buyers.”

If you are a first time buyer looking to find out more about owning a property or shared ownership, you can contact Nicki or the teams by emailing conveyancingquote@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.