The biggest tax announcement in the Chancellor’s first Autumn Budget was an exemption from Stamp Duty Land Tax (SDLT) for first-time buyers.
The government estimates that 80% of all first-time buyers will pay no SDLT as a result of the new exemption and a further 15% will pay SDLT at a reduced rate.
The Chancellor announced, during his Spring Statement on 13 March, that around 60,000 first-time buyers have already benefited from this relief since it was introduced less than four months ago.
First-time buyers purchasing a home worth less than £300,000 are now completely exempt from SDLT.
First-time buyers of homes worth between £300,000 and £500,000 are exempt from SDLT on the first £300,000 and will pay the normal rate of 5% on the remaining amount.
First-time buyers of homes above £500,000 will pay SDLT at the normal rates. The objective of the exemption is to help first-time buyers get onto the property ladder, by removing one of the big upfront costs. The government estimate this new relief will help over a million first-time buyers take that first step with SDLT savings of up to £5,000 under the new exemption.
HUSBAND AND WIFE PURCHASES
For joint purchases, both parties must be first-time buyers. If one party has previously purchased a property, SDLT will be payable in full at the normal rates.
If, the spouse, who is a first-time buyer, was to purchase a house independently, however, they may be able to benefit from the exemption subject to certain conditions.
Tom and Rita are currently living in a property owned by Tom but wish to sell this and purchase a new house worth £275,000 that will be their main home going forward. Rita has not previously owned a property.
If they jointly purchase the new house SDLT will apply at the normal rates and £3,750 will be payable. If, however, Rita were to purchase the property in her sole name, as a first-time buyer, no SDLT would be due.
It should be noted that if one spouse decides to purchase a property in their sole name, they must be in a financial position to allow them to do so. For example, if a mortgage is required the spouse must be able to take this out independently.
More importantly, there is a further catch to be aware of if going down this route but at some point in the future are thinking of transferring part ownership to a spouse.
The new rules include a clawback mechanism for the SDLT relief if, at any later date, there is a linked transfer which would have made the original transaction ineligible for the relief. Examples of this could include something that takes the consideration above the £500,000 or gifting part, or all, of the property to a spouse at a later date, who has previously owned a property.
Taking our example, if Rita was to gift 50% of the property to Tom 10 years later, the rules suggest that SDLT would become chargeable on the original transfer and an SDLT return must be filed declaring the liability.
Sarah and Matthew are married and living in a property owned by Sarah but Matthew wants to invest in a buy-to-let property worth £275,000. This would be his first property purchase.
As Matthew is a first-time buyer you might expect that he would not be subject to SDLT under the new rules as the sole investor. However, the new rules state that the relief is not available where the 3% SDLT surcharge rules apply for the purchase of additional residential properties.
Under these rules, spouses are considered as one person and, as Sarah already owns a property, and the property being purchased is not a replacement of their main residence, the surcharge will apply. In this case, therefore, the SDLT bill will be £12,000 regardless of whether Matthew purchases the property in his sole name or jointly with Sarah.
This could be a very unwelcome surprise, with a significantly higher bill than expected for Matthew if he had been expecting a complete exemption under the first time buyer rules, or, even if he had just been expecting to pay SDLT at the standard rates.
If you are unsure as to whether you are eligible for relief under the new first-time buyers exemption and/or whether the 3% surcharge on additional property purchases will apply, please get in touch.