Stamp duty on rent - did everyone know or is it news to you?

[IWillAlwaysBeinaClubWithYouin1973]

I'm buying shared ownership, have found out that the stamp duty on the rent proportion is higher than the stamp duty on my actual share - think £900 for the stamp duty on my 35% share and then £1.2k duty on the rent. I'm trying to understand this and my solicitor is being a bit like duh it's obvious. Did you know? I think this applies to actual rental as well, not just a shared ownership issue. Some info on it here:

https://www.benhams.com/calculator/stamp-duty-land-tax-for-tenants/

Trying to find HMRC link but can only find business rate info.

How odd. I've not heard of this. If that part of the property is not yours and only rented why should you pay stamp duty for it?

I must admit it hadn't crossed my mind that it was a thing

I do know that rent over £125k for the term can attract Stamp Duty BUT I hadn't thought about it with relation to Shared Ownership as I only deal with AST's of 1 or 2 years.

What is SDLT and how is it calculated?
From December 2003 residential tenancies have the potential to be liable for Stamp Duty Land Tax (SDLT). The SDLT threshold was raised in March 2005 to £120,000 and in March 2006 to £125,000. SDLT is a tax levied on tenancy transactions, paid by Tenants and is calculated on the amount of gross rent for the term of the tenancy less a pre-set discount (Temporal Discount Rate) (currently 3.5%). This computation produces an amount known as the Net Present Value (NPV). From 17 March 2006 if the Net Present Value (NPV) is less than £125,000, no Stamp Duty Land Tax is payable. If the NPV is greater than £125,000, Stamp Duty Land Tax is calculated as 1% of the difference between the NPV and £125,000. E.g. If the NPV is £128,000 the SDLT to be paid is 1% of the difference between the NPV figure and £125,000, ie 1% of £3,000 which is £30. These are example numbers and vary from time to time. You are advised to take legal advice on what your liabilities for SDLT may be.

So you’re buying a new shared ownership? Are you a first time buyer?

I agree it’s annoying.

It’s ground rent, so it doesn’t doesn’t apply to ASTs. Any new leases, non-shared ownership that is, now have to have a nil ground rent.

Here’s the calculator https://www.gov.uk/stamp-duty-land-tax/shared-ownership-property

Also, some housing associations have a bad habit of making you pay a 1% of market value fee to them when you sell the property. Check the report your solicitor sends you for that.

@MinnieMountain I think we might be talking at cross purposes, I am not talking about ground rent and the link you have sent is about ordinary stamp duty which you can pay on your share or elect to pay on the market value - is that what you meant to send?

I'm talking about the calculation for future rent and the additional, separate stamp duty that you pay on that.

You pay stamp on a long term lease - most residential long term leases have a big premium and not very much annual rent, and so the stamp is just on the premium part.

You have a long rent bearing lease, so you pay stamp on the net present value of the first five years of rent payments.

You wouldn’t need to pay it on a ‘normal’ AST as that’s a short term lease.

You see stamp paid much more often on commercial leases which are more often structured that way.

@Hoppinggreen - thanks for this; I want to try to do this calculation myself (triumph of hope over experience) - do you know how they set the "term of the tenancy"? For example, my new lease is 999 years, so my rent will definitely go over £125k if I live for 999 years! But seriously, is there a nominal period of time HMRC applies to work it out e.g., 10 years? My starting rent is £700 a month.

@Hoppinggreen I think I've done it without calculating the NPV - bit frustrating as I wanted to know how to do it old school with a pencil and paper sort of thing, but in the end I used this:

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax#!/intro

It was broadly in line with what my solicitor told me was the total, but when I asked them to provide the algorithm they literally patted me on the head and said its VERY complicated dearie!

You are welcome but I am not sure how helpful I was.
My clients only usually have 3 year contracts at most so I'm not familiar with your exact situation
Best of luck

@VerySkilledFirefighter thank you too, its good to know I am not going mad, I just want to know what I'm letting myself in for.

Surely you don’t have to pay the stamp duty on the other 65% of the property until the time you buy a bigger share in it?

Like if you bought another 20% of the property in future say, at that point you would have to pay stamp duty on the extra 20% you own?

This isn’t stamp duty on the purchase of the property. It’s stamp duty on the rental portion. Stamp duty is payable on rental contracts which exceed a total of £125k.

I did not know that - thank you.

Not many people do, hence the OPs confusion.