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Shared Ownership Scheme – A Pathway for First-Time Homebuyers

Published by Merisha Shrestha
Published Date: May 18, 2023 , Updated Date: April 24, 2024

The dream of home ownership often comes with its fair share of challenges, especially for first-time buyers. However, various initiatives have been implemented to help individuals step onto the property ladder.

One such popular solution for first-time home buyers is the Shared Ownership Scheme, which offers a promising opportunity for individuals who are unable to afford the full deposit and mortgage payments for a home that suits their requirements.

In this article, we will take a closer look at the Shared Ownership Scheme and see how it benefits first-time buyers.

Understanding Shared Ownership

SDLT relief expands to first-time buyers

Starting from 29 October 2018, the government has expanded the stamp duty land tax (SDLT) relief to include first-time buyers who purchase properties through approved shared ownership schemes. The relief is applied retrospectively from 22 November 2017, potentially allowing eligible buyers to claim a tax refund if they paid SDLT after that date.

Shared Ownership, also known as part-buy/part-rent, is a government-backed housing scheme designed to assist first-time buyers in purchasing a property. It provides an affordable option by allowing buyers to purchase a share of their home and pay rent on the remaining portion.

Typically, buyers can purchase a share ranging from 25% to 75% of the property's value, and the remaining share is owned by a landlord.

How Does Shared Ownership Work?

Under the Shared Ownership Scheme, eligible first-time buyers can purchase a share of a property through a mortgage or by using their savings, typically between 25% and 75% of its full market value. The buyer then pays rent to the landlord for the remaining portion of the property that they don't own.

A deposit is also required when participating in shared ownership, typically ranging from 5% to 10% of the share being purchased.

Gradually, buyers have the option to increase their share of the property over time, a process known as "staircasing." Staircasing gives first-time buyers the freedom to gradually increase their ownership in the property over time.

This allows them to build value in the property and have more control over their housing situation.

Shared Ownership Eligibility

A first-time buyer refers to an individual who is purchasing a property for the first time and has not previously owned a home or property in the past.

In addition to being a first-time buyer, the buyer must also meet the following criteria to be eligible for shared ownership:

  • The household income is £80,000 or less per year (£90,000 or less per year in London).
  • The buyer is unable to afford the full deposit and mortgage payments for a home that meets their requirements.

SDLT Calculation under Shared Ownership

calculating SDLT under Shared Ownership Scheme

When it comes to calculating and payment of Stamp Duty Land Tax (SDLT) under the Shared Ownership Scheme, there are two approaches available:

1. Market Value Election

The market value election in a shared ownership scheme refers to an option available to first-time buyers where they can choose to make a one-off payment for SDLT based on the market value of the property they are purchasing.

By electing to pay SDLT based on the market value of the property, buyers effectively calculate the tax liability using the full market value at the time of the purchase. This means that they will pay the SDLT amount applicable to the entire property value, as determined by the prevailing SDLT rates and thresholds.

For Example, 

John, a UK resident first-time buyer, purchases a 40% share in a shared ownership property worth £500,000 by paying £200,000. He chooses the market value election for SDLT calculation, which means that SDLT will be calculated based on the total market value of the property. As the market value is below £625,000, he is eligible for first-time buyers' relief.

SDLT Calculation:

0% SDLT on the £425,000 = £0

5% SDLT on the remaining £75,000 = £3750

In this scenario, he would pay a total SDLT of £3,750. No further SDLT would be due on any additional shares purchased or if the buyer goes on to purchase the property outright. Rental payments do not attract SDLT.

Know your precise Stamp Duty taxes with our SDLT Calculator.

2. SDLT Payment in Stages

The option of paying SDLT in stages refers to an alternative method of settling the SDLT liability for first-time buyers. When choosing to pay SDLT in stages, buyers initially pay SDLT based on the value of the share they are purchasing rather than the full market value of the property.

The SDLT payment is calculated according to the prevailing rates and thresholds applicable to the share being acquired.

Subsequently, as the buyer's ownership share in the property increases, they have the option to make additional SDLT payments to reflect the increased ownership percentage. This process is commonly referred to as "staircasing," where buyers gradually increase their share of the property over time.

For Example, 

Nisha, a UK resident first-time buyer, purchases a 30% share in a shared ownership property worth £400,000. She pays a premium of £120,000 for her share and opts to pay SDLT in stages. Since the market value of the property is below £625,000, the SDLT rates for first-time buyers apply. As a result, no SDLT will be due on the £120,000 premium.

Regarding the rental payments, SDLT may potentially be applicable. However, since the buyer is claiming first-time buyers' relief, the relief also extends to the rental payments. Therefore, no SDLT is due on this transaction, including the rental payments.

Which One to Choose?

Deciding whether to choose the market value election or payment in stages for SDLT under the shared ownership scheme depends on various factors and individual preferences.

payment method for SDLT first time buyer

The market value election can be advantageous for buyers who have the necessary funds available upfront or who prefer to settle their SDLT liability immediately. By making a one-time payment, buyers can potentially avoid the administrative complexities and additional costs associated with paying SDLT in stages.

On the other hand, the payment in stages option provides financial flexibility to first-time buyers by allowing them to spread out their SDLT liability over time. This approach can be particularly beneficial for buyers who may not have the full SDLT amount available upfront, making homeownership more affordable and manageable.

Buyers should carefully consider their financial circumstances, including the availability of funds and the impact of SDLT on their overall budget, before deciding whether to make a market value election or opt for the alternative payment method of paying SDLT in stages.

Advantages of Shared Ownership for First-Time Buyers

Shared Ownership offers numerous advantages to first-time buyers seeking to step onto the property ladder.

From lower upfront costs to increased affordability and potential for future equity, Shared Ownership opens doors to homeownership that might otherwise be out of reach.

Here are some advantages in brief:

1

Affordability

Shared Ownership enables first-time buyers to enter the property market with a smaller deposit and lower mortgage repayments. By purchasing a share, buyers can take a step towards owning a home that may have otherwise been out of reach.

2

Shared Costs

Buyers benefit from sharing the costs of property maintenance and repairs with the landlord. This arrangement can provide additional financial stability, particularly in the early stages of homeownership.

3

Increased Flexibility

Shared Ownership allows buyers to increase their share of the property over time, tailoring homeownership to their financial circumstances. This can help them build value in the property and eventually become full owners, giving them more control over their investment.

4

Potential for Capital Appreciation

As property values increase over time, homeowners who have purchased a share can benefit from the appreciation of the value of their portion. This growth can provide a positive financial impact when selling or staircasing to a higher ownership percentage.

Conclusion

To sum up, the Shared Ownership Scheme provides an attractive opportunity for first-time buyers to step onto the property ladder.

By offering a more affordable entry point, shared costs, and potential for equity growth, the scheme addresses some of the barriers faced by those aspiring to own a home.

Merisha Shrestha
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