The two routes
- Market value election: tax on the full value now. First-time buyer relief can apply if the full value is £500,000 or less. No SDLT on later shares, and the rent under the shared-ownership lease isn't taxed separately. Other payments, such as a separate service-charge premium, are not covered by this.
- Paying in stages: tax on the price of your first share now (if it's above the nil-rate band), plus 1% on the rent's net present value above £125,000. If any buyer is a non-UK resident, 2% is added to the rent rates too (2% up to £125,000, 3% above), as well as to the share. Later shares are tax-free until a purchase takes your total above 80%; that purchase and any after it are taxed.
First-time buyer relief
Available under both routes if every buyer is a first-time buyer who will live there and the home's full market value is £500,000 or less. With the election, relief applies to the market value. Paying in stages, it applies to your first share's price and also covers the rent, so no SDLT is due on the rent.
Example
A first-time buyer pays £100,000 for a 25% share of a £400,000 home. With the election, relief covers it and the tax is £5,000 (5% of the £100,000 above £300,000). Paying in stages, the share is under £300,000 and relief covers the rent, so the tax is £0 upfront.
Deciding
Make the election in your SDLT return. If you didn't, you can usually add it by amending the return within 12 months of the filing deadline; after that it can't be made. If you expect to staircase while prices rise, the election avoids a larger bill later.