Shared ownership is an affordable way for many people to get onto the property ladder. It allows buyers to purchase a share in a property (usually between 25% and 75%) while paying rent on the remaining portion. However, when it comes to stamp duty, shared ownership properties can seem a little confusing. In this guide, we’ll break down how stamp duty works for shared ownership, the available payment options, and what you need to know before making your purchase.
What is Shared Ownership?
Shared ownership is a government-backed scheme that helps those who can’t afford to buy a home outright. Buyers purchase a share of the property, and a housing association or developer retains the rest. Over time, homeowners can increase their ownership percentage in a process called “staircasing.”
Because shared ownership is part-buy and part-rent, stamp duty payments differ from those on standard property purchases. The good news is that buyers of shared ownership properties have flexible options for how and when they pay stamp duty.
Stamp Duty Options for Shared Ownership
When buying a shared ownership property, there are two ways to pay stamp duty:
1. Pay Stamp Duty on the Full Market Value (Upfront Payment)
The first option is to pay stamp duty on the full market value of the property from the outset, even though you’re only purchasing a share. For example, if the full market value of the property is £300,000 and you’re purchasing a 50% share, you would pay stamp duty as if you were buying the entire £300,000 property.
Why choose this option?
- If you plan to increase your share of the property in the future (through staircasing), paying stamp duty on the full value upfront can save you from paying additional stamp duty when you buy more shares.
- You won’t need to worry about recalculating or paying stamp duty again when your ownership share increases.
2. Pay Stamp Duty on Your Initial Share Only
The second option is to pay stamp duty only on the share you are initially purchasing. Using the same example as above, if you’re buying a 50% share of a £300,000 property, you would only pay stamp duty on £150,000.
When do you need to pay?
- If the value of the share you’re purchasing is below £250,000 (the current stamp duty threshold for most buyers), you may not need to pay any stamp duty at this stage.
- However, if your share’s value exceeds £250,000, you will need to pay stamp duty on the portion that exceeds the threshold.
Keep in mind that if you choose this option, you’ll have to pay additional stamp duty when your total ownership share exceeds 80% of the property’s value.
First-Time Buyer Relief on Shared Ownership
First-time buyers of shared ownership properties can benefit from first-time buyer stamp duty relief. As of 2024, if you’re a first-time buyer purchasing a shared ownership property and the full market value of the home is less than £625,000, you won’t have to pay stamp duty on the first £425,000 of the property’s value.
This relief can make buying a shared ownership property even more affordable, especially for those looking to enter the property market for the first time.
Staircasing and Stamp Duty
One unique aspect of shared ownership is the ability to gradually increase your share in the property, known as staircasing. Each time you purchase a larger share, you may be subject to stamp duty, depending on how you paid it initially.
- If you paid stamp duty on the full market value of the property at the outset, you won’t need to pay any further stamp duty when staircasing.
- If you only paid stamp duty on your initial share, you’ll need to pay more stamp duty once your total ownership share exceeds 80%.
For example, if you started by owning 50% of a property and later increase your ownership to 85%, you’ll need to pay stamp duty on the additional 5%.
Key Considerations for Buyers
When buying a shared ownership property, it’s important to carefully consider how you want to handle your stamp duty payments. Paying upfront on the full market value may save you from future payments, but it requires a higher initial cost. On the other hand, paying only on your initial share spreads the costs over time but may lead to future payments if you staircase.
It’s also worth noting that while shared ownership can be an affordable way to enter the housing market, you’ll still need to budget for other costs, including legal fees, mortgage payments, and rent on the remaining share.
