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The Finance Act 2009 received Royal Assent on 21 July 2009. Amongst many other things there are provisions which deal with stamp duty land tax in relation to affordable housing.

Of particular interest to purchasers from Registered Providers (Registered Social Landlords as they used to be called prior to the closure of the Housing Corporation and the opening of the Homes and Communities Agency and Tenant Services Authority) are new rules which remove some of the complexities relating to rent to homebuy schemes. These new rules apply to any transactions whose effective date (generally the day of completion) is on or after 22 April 2009


Rent to Homebuy Changes

A rent to homebuy scheme is one where the purchaser initially rents a property from the Registered Provider in question under an assured shorthold tenancy. The rent is what is known as intermediate rent which is less than full market value (typically about 80%) but not as low as so called “affordable rents”. The reduced rent allows the purchaser to save money towards a deposit and they can, at any time during the term of the assured tenancy, elect to buy their property under a shared ownership lease.

The percentage that they can afford to buy will depend on how much deposit they have managed to save and can range from 25% to 75 % of the Property.

Prior to the Finance Act 2009 there were fairly complex rules in place dealing with the inter-relationship between the assured shorthold tenancy and the shared ownership lease. Without getting too bogged down in the detail, the two transactions would have been treated as being ‘linked transactions’ for the purposes of SDLT which meant that the values of the two would aggregated for SDLT purposes.

Also the effective date of the transaction (the date on which the return has to be submitted) was, technically, the date of grant of the assured shorthold tenancy or, the date that they took possession of the Property under that tenancy, which for many tenants would mean that they automatically missed their deadline for submitting their return since they would not consider whether it was an issue or not until they were taking legal advice about the shared ownership lease, many months or even years later.

Both of these issues have now been removed so that the assured shorthold tenancy and the shared ownership lease granted by the RP in question are not linked transactions and the effective date will ignore the prior occupation by the tenant.

Essentially this ought to mean that when considering a tenant who is buying under a “rent to homebuy” scheme they will be treated the same as someone purchasing a “normal” homebuy (i.e. shared ownership) lease.

There will still be the issue of considering whether the tenant taking the homebuy lease is going to elect to pay SDLT on the open market value of the Lease or, alternatively, on the tranche that they have purchased.

These rules are not changing in the Finance Act and, therefore, the election provisions remain as they were.


Open Market Election

If a tenant makes the election then they will be assessed on the market value of the Property for the purpose of calculating SDLT. Whilst the SDLT threshold remains at £175,000 there will be properties which fall within the SDLT 0% threshold meaning that a market value election is a good idea for them since they will pay no SDLT on the acquisition and, even when they buy further shares, there will be no further SDLT to pay.

(Even if they are subject to SDLT by making an election there are no further charges to SDLT on buying further shares so, for some tenants, it may still prove beneficial, however, each transaction should be assessed on its own merits.)


Paying on the Share that they have purchased

In this case the tenant is assessed for SDLT on the value of the share that they have actually purchased. If the value of their share is under the 1% SDLT threshold at the time of completing their acquisition then there will be no SDLT to pay at this stage.

When they staircase there are no further reporting or SDLT implications until the transaction that takes them over 80% ownership. This transaction has to be assessed for SDLT purposes. The total amount spent on the initial purchase of the Property plus sums spent on buying further shares (“staircasing”) are added together to ascertain which SDLT band the acquisition falls in. Once that has been assessed the tenant pays SDLT on the value of the share that they have purchased at the rate calculated from the SDLT band assessed as mentioned above.

If the Lease allows it there may be some merit, if tenants choose not to use the market value election route, in staircasing to 80% first and then having a separate staircasing of the final percentage(s) as this may reduce the total SDLT bill. However, tenants must take advice from their own solicitors about the best way in approaching this.

There are quite useful guidance notes available on the HMRC website which show some worked examples of how the election may or may not work depending on the circumstances.

Richard Stirk