Buying through a shared ownership scheme is another popular way in which first time buyers have been able to get onto the property ladder. First time buyer’s relief is available on these transactions if the total value of the property does not exceed £500,000. However, it is important to note that if for example, an individual purchases a 25% share in a shared ownership property and the total market value of the property is £500,000, relief would only be available if a market value election is made. SDLT would then be due on the total market value of the property. If no market value election is made or the total market value exceeds £500,000, no relief will be available. Although there are certain pitfalls that first time buyers need to consider carefully before making a purchase, the relief for first time buyers is a much welcome relief and if the conditions for relief are met, substantial savings are available to first time buyers. Gavin Birchall leads Scrutton Bland’s Property and Construction sector group and is a Tax Partner at Scrutton Bland. If you have any queries on SDLT or any of the issues raised by this article, please call any member of our Property and Construction Tax team on 01206 838400 or 01473 267000 or email gavin.birchall@scruttonbland.co.uk
Who is a first time buyer? A first time buyer is considered to be an individual who has never owned a residential property in the UK or anywhere else in the world, is purchasing a major interest in the residential property and who intends to occupy the property as their only or main residence. The relief is available on freehold and leasehold properties but not on leasehold properties with a term of less than 21 years. The good news is the relief is available for off plan purchases, e.g. new builds where contracts have been exchanged but the property is yet to be constructed. Important points to consider High property prices can make it difficult for first time buyers to get onto the property ladder without any help. Increasingly, parents help to fund their children’s purchase by either gifting them money for a deposit to assist in the purchase, purchasing an interest in the property themselves or acting as a guarantor for their mortgage. First time buyers may also aid their first time purchase by buying a property with a friend or buying a property through a shared ownership plan. However, there are some pitfalls that first time buyers need to be aware of with these approaches to ensure that they do not lose their relief and that much higher SDLT rates do not arise. A common situation is where a parent of a first time buyer, assists their child with the purchase of their first property and takes an interest in that property to reflect the amount contributed. A problem arises where the parent already owns a residential property as their main residence. In this situation, not only will first time buyer’s relief not be available but also the 3% SDLT surcharge may apply to the total consideration as the parent will be purchasing an interest in a second home which is not their main residence. This will mean that on a purchase price of £500,000, SDLT of 30,000 will be due in comparison to £10,000 (if first time buyer’s relief is available). Another situation we are seeing more often is where two siblings or friends purchase a residential property together and one of the individual’s has previously owned or inherited a property. If an individual has previously owned a property, they are not considered to be a first time buyer. If one of the individuals in the transaction is not a first time buyer, no first time buyer’s relief will be available on the transaction.
Relief for first time buyers One of the main points from the Chancellor’s budget last year was the introduction of a relief from Stamp Duty Land Tax (SDLT) for first time house buyers. This relief is of interest for both first time buyers and anyone who is looking to help to fund a first time buyer get on the housing ladder. How it works First time buyers will not pay any SDLT when they purchase a residential property for £300,000 or less. If the value of the property exceeds £300,000, SDLT will be payable on the value that exceeds this amount. First time buyers should note that if the value of the property purchased exceeds £500,000, no first time buyer’s relief will be available. For example, if an individual who is a first time buyer purchases a residential property for £475,000, the individual will not pay any SDLT on the first £300,000 and only £8,750 on the remaining amount (£175,000 at 5%). If however, the vendor also offered the first time buyer an additional piece of land that formed part of the garden and grounds of the residential property for an amount of £30,000, the total value of the consideration for the property and the grounds would exceed £500,000 and therefore no first time buyer’s relief would be available and SDLT of £15,250 (£125,000 at 0%, £125,001 to £250,000 at 2% and over £250,000 at 5%) would be payable under the standard rates. If instead the first time buyer negotiated the consideration down to £25,000 for the piece of land, first time buyer’s relief would be available on the purchase and only £10,000 (£300,000 at 0% and £200,000 at 5%) of SDLT would be payable on the transaction. It is also important to note from the above example that first time buyer’s relief is available on linked transactions in certain circumstances. The above example is one of the qualifying circumstances as the land purchase is linked to the property purchase and forms part of the garden and grounds of the house. Therefore relief is available if the total value of the consideration does not exceed £500,000.
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