A welcome break: SDLT and first-time buyers

Sarah Bradford highlights the potential stamp duty land tax savings for those who are buying their first home. 

Stamp duty land tax (SDLT) is payable on the purchase of land or property in England or Northern Ireland where the consideration is more than the relevant threshold. 

SDLT is a devolved tax and does not apply to property transactions in Scotland and Wales to which land and buildings transaction tax (LBTT) and land transaction tax (LTT) apply respectively. 

While these are similar to SDLT, the rules are not identical. This article focusses on SDLT as it applies to land and property transactions in England and Northern Ireland.

Nature of SDLT

SDLT is payable on residential and non-residential land and property, with different rates applying to residential and non-residential transactions. SDLT is payable when a person:

• buys a freehold property;
• buys a new or existing leasehold;
• buys a property through a shared ownership scheme; or 
• is transferred land and property in exchange for a payment (such as taking on a mortgage or buying a share in a house).

Residential property

SDLT is payable on purchases of land and property in excess of the residential SDLT threshold. This is set at £125,000. Different rates apply to different ‘slices’ of the consideration above the SDLT threshold. 

The residential rates at the time of writing are as follows:
 

Consideration	Rate
Up to £125,000	0%
Next £125,000 (slice from £125,000 to £250,000)	2%
Next £675,000 (slice from £250,001 to £925,000)	5%
Next £575,000 (slice from £925,000 to £1.5 million)	10%
Remainder (slice above £1.5 million)	12%

 

 

HMRC have produced a calculator that can be used to work out the SDLT payable on the purchase of residential property. The calculator is available on the Gov.uk website here.

The rules and rates are different for first time buyers and on second and subsequent properties.

Leasehold property

The residential rates above apply to the purchase price of the lease (the lease premium) on the purchase of new residential leasehold property. 

Further, if the net present value of the rent is more than £125,000, SDLT is payable on the portion over £125,000 at a rate of 1% unless the purchase is of an existing (assigned) lease.

Second and subsequent properties

Higher SDLT rates apply to the purchase of second and subsequent residential properties. Such properties attract a supplement of 3% on top of the purchase price where the price of the second property is more than £40,000. 

The rates on second homes costing more than £40,000 are as follows:
 

Consideration	Rate
Up to £125,000	3%
Next £125,000 (slice from £125,000 to £250,000)	5%
Next £675,000 (slice from £250,001 to £925,000)	8%
Next £575,000 (slice from £925,000 to £1.5 million)	13%
Remainder (slice above £1.5 million)	13%

 

 

 

The supplement does not apply where the main residence is exchanged, even if the person owns another property. For example, if Helen (see Example 2) sold her main residence and brought a replacement home, she would only pay the normal rates on the purchase, despite having a second property. 

First-time buyers

Getting on the property ladder can be difficult and expensive. To help first-time buyers buy their first home, SDLT reliefs are available for first-time buyers. The savings can be great, but the relief is limited and its availability depends on the price of the property.

First-time buyers do not pay any SDLT if they buy a property that cost no more than £300,000; where the purchase price is between £300,000 and £500,000, first time buyer relief reduces the amount of SDLT payable – no SDLT is payable on the first £300,000 and SDLT on the portion between £300,000 and £500,000 is payable at a rate of 5%.

First time buyers who buy a property costing more than £500,000 pay the normal residential SDLT rates – there is no first-time buyer relief if consideration exceeds £500,000. This is perhaps harsh as it does little to help first time buyers get on the ladder in areas such as London where property prices are very high.

A first-time buyer is an individual or individuals who have never owned an interest in a residential property in the UK or elsewhere in the world and who intend to occupy the property as their main home. It is not available to someone buying a property to let out, even if they have never owned a property before.

First time buyer relief must be claimed in the SDLT return. The relief is worth up to £5,000.
 

Slice	Amount	Rate	SDLT
£0 to £300,000	£300,000	0%	£0
£300,001 to £400,000	£100,000	5%	£5,000
Total	£400,000	Total	£5,000

 

Shared ownership

Shared ownership schemes enable people to buy a property in stages. When a property is purchased from a shared ownership scheme under a shared ownership lease, there are different ways in which the SDLT may be paid – either as a one-off payment based on the total market value of the property, or in stages each time a share of the property is purchased. 

If the first option is chosen, the SDLT is payable on the market value of the property at the start. An election (a market value election) must be made to use this method. Where it is used and SDLT is paid at the start, there is no further SDLT to pay, even if a bigger share in the property is purchased at a later date.

Under the second option, SDLT is paid each time a share in the property is purchased. After the first share has been brought, no further SDLT is payable until the person’s share in the property reaches 80%. Buying more shares in the property is known as ‘staircasing’. Once the share in the property exceeds 80%, SDLT is payable on the transaction that took the share over 80% and any further transactions, with SDLT being based on the total amount paid for the property so far. The transactions are linked transactions for SDLT purposes.

First time buyer relief is available for the grant of a shared ownership lease, regardless of whether a market value election is made or the SDLT is paid in stages (the relief applies retrospectively from 22 November 2017). 

Where a market value election is made, the first-time buyer SDLT rates apply to the consideration under that treatment (as long as the market value is not more than £500,000). Where relief is claimed, no SDLT is due on any rent paid under the lease. Where SDLT is paid in stages, the first-time buyer rates apply to the actual consideration (the premium) paid for the initial share. However, the first-time buyer rates only apply if the actual market value of the property is £500,000 or less. The first-time buyer rates only apply to the first transaction – the usual rates apply to any subsequent share purchased.

The relief must be claimed in the land transaction return or in an amendment to that return.

Practical tip 

First time buyers should ensure that they (or their professional advisers) claim the SDLT relief to which they are entitled.