Buying a house is an incredibly exciting time, but it also has the potential to be an overwhelmingly stressful experience. To help you through the process, we’ve pulled together a series of articles that will guide you through the key areas of purchasing your property, and help you to make the right decisions.
In the previous article, we looked at requesting estimates for the legal services that lawyers will carry out on your behalf.
Back in November 2017, it was announced that “First Time Buyers (FTB) do not have to pay Stamp Duty Land Tax!”
First time buyers everywhere rejoiced and started to think about that new sofa they could spend this extra money on. Meanwhile, lawyers braced themselves knowing that they would be the ones to reveal that a good number of ‘first time buyers’ were still going to have to pay normal rates of SDLT and, in some cases, perhaps even the higher 3% surcharge.
The reason for this is that there are lots of little quirks behind this FTB relief, so let’s start with the basics…
What is Stamp Duty Land Tax? (SDLT)
SDLT is a tax paid on land transaction purchases. For the sake of this article, we are concentrating on the rules in England. FTB relief provides an exemption of paying the usual rates of SDLT providing the transaction meets certain criteria. It applies to purchase completions made after 22 November 2017 and it cannot be applied retrospectively. Currently, there is no planned end date.
To qualify for this relief, you must meet certain strict criteria:
The buyer
You can be any age, and must be buying a property as an individual (not a company).
The property
FTB relief applies to the purchase of residential buildings only. You can buy a whole building (perhaps a freehold house) or a smaller part of a building (a flat, providing the lease of the flat has more than 21 years left to run).
The property must be a single dwelling – there cannot be additional accommodation such as an annexe. Nor can there be any commercial parts of the property, such as agricultural land or perhaps a shop included. The property can include garden land and a garage or outbuildings providing it is all for the benefit of the house.
Price limits
FTB relief applies to all residential purchases of £500,000 or less.
– Up to £300,000, you will pay no SDLT
– Between £300,001-£500,000, you will pay a flat rate of 5% on the price above £300,001
– More than £500,001 you will not be entitled to the relief
There is a useful calculator on HMRC’s website, but beware of the questions – they are not as simple as they seem – and it will not always give you a completely accurate result:
https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro
This is all relatively straightforward so far, but here comes the trickier bits:
Living intentions
All buyers must intend to live in the property as their only or main home. You cannot purchase with the intention to let the property.
Joint purchaser
If you are buying the property with someone else, you must both satisfy the criteria. If one of you has owned a property before, or one of you will not live there, then you cannot claim relief. If your parents are buying a house jointly with you – perhaps to help you get the mortgage you need – but they already own their own home, you will not be classified as first time buyers.
First time
You must not have owned residential property anywhere in the world. The emphasis here is ‘owned’ and not ‘bought’. You may have owned a property even if you did not buy it, perhaps because you inherited it, or perhaps you are currently a beneficiary of a family trust that owns residential property. If any of this applies to you, then you are not a first time buyer. The rules are complex here and there are other ways of owning or having owned property that may apply.
Let’s now look at three common scenarios:
Scenario 1
Your grandmother left you and your sibling a half-share in her house when she died. You are now buying your first home with your share of the proceeds from the sale of that house. Do you qualify for relief?
No – if you previously owned the inherited share in the property you are not now classified as a first time buyer.
Scenario 2
15 years ago, your parents bought you a house to live in as a student. You are now buying your first home. Can you claim relief?
Yes – if just your parents owned the house and you were not a named owner.
No – if your parents and you were all named as the owners together.
Scenario 3
You own a house with your sister that is rented out. You are also renting at the moment. You now want to buy your first home for you and your family to live in. Can you claim relief?
No – you already own a house and so you are not a first time buyer.
There are many other circumstances that can affect your classification as a first time buyer. There are also a number of other reliefs and transaction links or circumstances that can affect the rate of tax you will pay. When you are buying a property, it is safer to budget for the payment of SDLT until you can discuss it with your Lawyer and hopefully prove otherwise.
This article was written by Tanners Solicitors. For further information, or to discuss your personal circumstances please contact:
- Lisa Holmes (01285) 646129 or email lch@tanners.co.uk
- Amy Dicker (01285) 646128 or email ahd@tanners.co.uk
Next time, we’ll take a detailed look at purchasing Freehold property…