Stamp Duty Land Tax: First Time Buyer Relief

Malcolm Finney explores the new relief.

Stamp duty land tax (SDLT) is a tax which is levied on the purchase of land (which includes buildings on the land) in England, Wales, and Northern Ireland. SDLT was devolved to Scotland in April 2015 and is expected to devolve to Wales in April 2018.

This article concentrates on transactions in residential (as opposed to non-residential and mixed-use) property.

The quantum of SDLT payable on a land purchase is based on a percentage of the consideration provided by the purchaser:

Up to 125,000         0%

>125,000 and <=250,000 1%

>250,000 and <= 500,000 4%

>500,000 and <= 925,000 5%

>925,000 and <= 1,500,000 10%

>1,500,000 12%

X purchases a residential property for £600,000.

The SDLT charge is:

125,000 x 0% + 125,000 x 1% + 250,000 x 4% + 100,000 x 5% = £16,250.

For purchases of residential property where ‘completion’ occurs on or after 22 November 2017, a new form of relief has been introduced for ‘first time buyers’ only. The relief applies where the consideration for the purchase is no more than £500,000. The SDLT rates are 0% on the first £300,000 and 5% on the excess over £300,000 up to £500,000 (i.e. a maximum charge of £10,000).

Y, a first-time buyer, purchases a residential property for £400,000.

The SDLT charge is:

0% x £300,000 + 5% x £100,000 = £5,000.

In the absence of first time buyer relief, the charge would be:

£125,000 x 0% + £125,000 x 1% + £150,000 x 4% = £7,250.

For the relief to apply it is necessary that the purchase is of major interest (e.g. a freehold or leasehold interest of 21 years or more) in a single dwelling. A dwelling is a building (or part) which is used, or is suitable for use, as a dwelling (or is in the process of construction/adaption for such use). Any surrounding land/gardens used with the residence are included as part of the dwelling.

The property must constitute an only or main residence of the purchaser (i.e. the purchaser must live in it). Hence, the purchase of a buy-to-let or second home will not qualify (thus, typically, if the purchase attracts the higher rates of SDLT (i.e. is subject to the 3% SDLT surcharge) first-time buyer relief is denied). 

Z owns a buy-to-let property and lives with his mother in her house.

Z decides it’s time to buy himself a house to move into and live in as his only residence.

As Z already owns a buy-to-let property, his proposed purchase will not qualify for first time buyer relief (and will also be subject to the 3% surcharge).

Had Z not owned the buy-to-let property, first-time buyer relief would be available on his purchase (assuming the consideration was no more than £500,000).

It is also necessary for the purchaser to have never owned an interest in a dwelling situated in the UK or elsewhere in the world (e.g. a Spanish holiday home) prior to the proposed purchase.

Problems may also arise in respect of joint purchases of a residence. 

Suppose that Tom and Henry are friends from university, and they decide to jointly purchase their first property to live in; first time buyer relief will be available. However, Brian, one of their friends, is also looking to buy a property to live in, but he can’t get a mortgage based on his own finances; so, his parents agree to help. A joint mortgage is obtained in the names of all three of them (requiring all three of them to be registered owners) with the beneficial interests owned as to 50% by Brian’s parents and 50% by Brian. Only Brian will live in it. Unfortunately, Brian will not qualify for first time buyer relief. The relief requires that all purchasers must qualify, and as Brian’s parents already jointly own their own home the relief is denied on the whole transaction.

An interest in an inherited property can also scupper first time buyer relief.

James’ mother died, and she left her 50% interest in the residence she owned with her husband to James.

At the time of his mother’s death, James was renting.

Two years later, James manages to buy a property for £450,000 to live in.

First time buyer relief will not be available to James as he already owns a 50% interest in another property.

First time buyer relief means literally what it says. It is available only if at the time of purchase the purchaser does not own, and has never owned, an interest in another residence.