What is Staircasing?
Staircasing is a process where an owner of a Shared Ownership property purchases further shares of the property from the housing association who owns the remaining part.
An owner can usually purchase in blocks (tranches) of 10% or more. However as there are valuation and legal fees to pay, a leaseholder would be well advised to buy the largest additional share they can afford at the time of staircasing.
Tanya Hills from Direction Law, one of Family Mosaic’s panel mortgage advisers, helps to explain the process:
What is intermediate staircasing?
This is the purchase of a share which increases the amount owned by the leaseholder, but not to 100% (e.g. staircasing from 50% to 75%). After intermediate staircasing the leaseholder remains a shared owner.
A valuation is carried out and the price payable for the share is based on this. Once the share has been bought there is a corresponding reduction in the amount of rent paid to the housing association, as you only pay rent on the share you do not own.
What is final staircasing?
Once the final share has been purchased, the owner will own 100% of the property and hence no longer be a shared owner.
If the property is a house then the former shared owner will become the owner of a freehold property following final staircasing.
With a flat, the property will still be leasehold which means that service charges continue to be payable. However, the “Specified Rent” payable to the association is reduced to nil, although in some cases a small ground rent may still be payable. Also, certain provisions of the lease will be excluded so that it is no longer a Shared Ownership lease.
As with an intermediate staircasing, the price payable is based on the current market value of the property as assessed by a valuer.
How do I pay for my staircasing?
The additional share can be bought either with savings or with the assistance of a mortgage. If paying for it with a mortgage, then this may be either by way of a further advance from your existing lender or a remortgage i.e. a new loan from another lender.
In the case of an interim staircasing, the mortgage offer must be approved by the association and the additional borrowing must be no more than the amount being paid for the additional share. With a final staircasing the mortgage does not have to be approved by the association and there are no rules limiting the amount you can borrow.
SDLT on staircasing
Stamp Duty Land Tax is not payable on intermediate staircasing unless the share owned following staircasing is over 80%, in which case the transaction is treated for tax purposes as though it were a final staircasing.
The rules regarding Stamp Duty Land Tax on final staircasing transactions are extremely complicated.
If you paid duty on the full market value at the time you bought your initial share then no further duty is payable on final staircasing, however it is not often that shared owners choose to pay on the full value when they first buy.
Otherwise, the premiums paid for the initial share, any intermediate shares and the final share are added together to determine the rate of tax payable on the final share. Duty is then paid at the applicable rate proportionate to the amount being paid for the final share, even if the price being paid is at a level where the transaction would normally be either exempt or chargeable at a lower rate.