The abolition of the “slab system” for stamp duty land tax (SDLT) on 4 December 2014 generally reduced the tax payable on lower value properties. For example, properties worth £160,000 now attract SDLT of £700 compared with £1,600 under the old slab system. The same benefit also applies to shared ownership leases and, indeed, the SDLT charged can be even lower, although the rules are somewhat complex.
With a staircasing transaction under which the lessee can acquire additional interests in the property (and assuming the lessee has not opted to be taxed on the market value of the property) no SDLT is payable until the lessee holds over 80% of the property.
Once the 80% level is exceeded, SDLT is chargeable on the consideration paid for the acquisition which takes the lessee’s interest above 80% and all subsequent acquisitions. All such transactions are “linked” for SDLT purposes, meaning that further SDLT may be payable on earlier acquisitions which took the lessee above the 80% threshold.
For transactions which occurred before 12 March 2008, the initial grant of the share ownership lease is also linked, meaning that SDLT could become payable on the initial grant once the 80% level is exceeded. For example, assume Mr Smith spent £80,000 on 1 March 2008 on a 50% share in a property with a total market value of £160,000. He later buys a further 25% share in the property for £40,000, taking his ownership to 75%. On or after 4 December 2014, he buys the final 25%, including the freehold, for £40,000 and becomes the outright owner of the property.
There was no SDLT payable on the grant of the lease because £80,000 was below the SDLT threshold. Neither was SDLT payable on the acquisition of the next 25% because this did not take his interest to above 80%. However, SDLT is payable on the final acquisition because his interest then exceeds 80%. One calculates the total SDLT due on a purchase for £160,000 at £700 and apportions 25% of this to the final acquisition of 25%. The SDLT due is £175.
Because the initial grant occurred before 12 March 2008, there is also SDLT to pay on the 50% of the property he bought then. This is £350 – being 50% of the total SDLT due on a purchase for £160,000 (£700). However, there is no SDLT on the middle acquisition of 25% because this transaction did not take Mr Smith’s interest above 80%.
If the initial grant of the lease had occurred on or after 12 March, the additional £350 on the grant of the initial lease would not have been payable because the initial grant is not treated as linked with subsequent transactions for this purpose. The disparity between pre and post 12 March 2008 leases is not a new feature of the legislation caused by the abolition of the slab system. It is a hangover from the linked transactions rules introduced in 2008.