Whilst changes in Stamp Duty Land Tax (SDLT) in 2016 introduced higher rates of stamp duty for purchases of additional property, which has not been welcome news for property owners, there has, at last, been a step towards helping those just about to join the property ladder in England (there are separate SDLT arrangements in Scotland and Wales not covered by this article). From 22 November 2017 the Government introduced a tax relief on Stamp Duty Land Tax payable by individuals buying their first home, as long as the purchase price does not exceed £500,000.
This article considers two important elements of the relief:
- who is eligible for first time buyer’s relief?
- what is the tax saving by claiming first time buyer’s relief?
Who is eligible for first time buyer’s relief ?
For the purposes of this relief, you must be an individual or individuals buying a single residential property as your main residence and you must have never before:
- Owned a residential property anywhere in the world
- Inherited a residential property anywhere in the world
- Been a beneficiary of a trust that owns a residential property anywhere in the world.
If there is more than one buyer, all buyers must be ‘first time buyers’ in order to claim the tax relief.
If you are married or in a civil partnership, the property owned by your spouse/civil partner must also be factored in. If they would not be considered a first time buyer this will prevent you from claiming the relief (even if you are buying the property in your sole name).
What is the tax saving?
If you satisfy the criteria and are eligible for first time buyer relief, what is the saving and how is it calculated?
- If the purchase price does not exceed £300,000, no SDLT will be payable on your purchase. On purchases at £300,000 this is a tax saving of £5,000
- If the purchase price is between £300,000-£500,000, then the first £300,000 is taxed at 0% and the remaining balance is taxed at 5%. On a purchase price of £500,000 the SDLT payable is £10,000, meaning this is a tax saving of £5,000
- If you purchase your first property for £400,000, the first £300,000 is taxed at 0% and the £100,000 remaining balance is taxed at 5% (£5,000 SDLT is payable instead of £10,000)
- If the purchase price is for more than £500,000, you cannot claim the tax relief. It only applies to purchases up to a maximum of £500,000.
The average first time buyer is now likely to pay no stamp duty. When instructing a solicitor to assist you with your first property purchase, you should let your solicitor know at an early stage that you believe that first time buyer relief may apply and ask them to check whether you can take advantage of this relief.
Shared ownership properties
First time buyer relief does apply to shared ownership property too. Prior to October 2018, buyers could only benefit from the relief if they elected to pay SDLT based on the full market value of the property (rather than just the percentage interest they were buying). The Budget in October 2018 changed this, so that buyers who instead elect to pay the SDLT in stages, can also benefit from the relief. The relief will be applied to the first share in the property that is purchased (as long as this is less than £500,000). The SDLT payable is at the same rates as referred to above.
There is further good news, as the change has been backdated to apply to all transactions that have taken place since 22 November 2017. Buyers who have paid more SDLT than they now would under this arrangement can make a claim for a refund. There are time limits for claiming this refund, so if you think this may apply to you, make sure you act quickly.