The Chancellor, Philip Hammond, extended an olive branch last month to first-time buyers who have struggled to get on the ever-more expensive property market.
Effective from 22 November 2017, the stamp duty cut is valid for first-time buyers of property worth up to £300,000 and it will also apply to the first £300,000 for properties worth up to £500,000.
It is expected to help more than a million first-time buyers get onto the housing ladder in the next five years. Essentially, the measure will cut tax for 95% of all first-time buyers while 80% would be lifted out of paying the tax at all.
But the detailed guidance notes accompanying the Budget announcement have highlighted some surprising scenarios where first-time buyers won’t be eligible for the stamp duty relief. Instead they’ll pay the standard stamp duty rate or the 3% stamp duty surcharge on buy-to-let or second homes:
- 0% on property purchase of £0 – £125,000 (3% for the surcharge)
- 2% on property purchase of £125,001 – £250,000 (5% for the surcharge)
- 5% on property purchase of £250,001 – £925,000 (8% for the surcharge)
- 10% on property purchase of £925,001 – £1.5m (13% for the surcharge).
First-time buyers who will still be hit include:
While an attractive and inclusive feature, there is a big problem for first-time buyers going down the buy-to-let route.
In order to claim the stamp duty relief, the purchaser must be a first-time buyer. But HMRC defines a first-time buyer as a “purchaser who intends to occupy the property as their only or main residence”.
Therefore, a first-time buyer going down the buy-to-let route doesn’t meet the criteria.
For joint buy-to-let mortgage applications where one person is a first-time-buyer and the other already owns property, the purchase will also be subject to the stamp duty surcharge.
See YourMoney.com’s Struggling first-time buyers: could buy-to-let be the answer? for more information.
2) Shared ownership
Shared ownership schemes are designed to help first-time buyers onto the property ladder. They enable people to buy between 25% and 75% of a property and pay rent on the remainder which is owned by the local housing association.
The technical guidance on shared ownership and stamp duty relief states: “Relief can only be claimed in respect of the grant of a shared ownership lease or the declaration of a shared ownership trust where ‘market value’ treatment applies.
“In such a case relief applies as usual to the relevant consideration under that treatment. Where “market value” treatment does not apply or has not been opted for, relief cannot be claimed in respect of any of the transactions involved in shared ownership schemes”.
This means that for a first-time buyer looking to buy a shared ownership property, the stamp duty relief only applies where they elect to be taxed on the market value of the property (worth up to £500,000), rather than the buyer’s share (25%-75% for instance).
However, if a property costs £200,000 and the buyer owns 25% (£50,000) or 75% (£150,000), whether they declare the ‘full market value’ or not, they will be eligible for the stamp duty relief as they won’t pay on either the initial portion purchased or any staircasing payments.
3) Short lease
Flats and maisonettes tend to be bought on a leasehold basis but in recent years, houses have also been sold in this way, rather than being treated as a freehold purchase.
The stamp duty relief applies on all dwellings to be occupied by the property buyer.
The guidance states: “A purchase is a purchase of a major interest if the interest acquired is a freehold or leasehold interest; for this purpose, an acquisition (whether by grant or transfer) of a lease with less than 21 years to expiry from the effective date, is not treated as a major interest”.
HMRC confirms that where a first-time buyer is looking to buy a leasehold property with less than 21 years left remaining on the lease, it’s not considered a ‘major interest’, so the stamp duty relief won’t apply. Instead, the standard rate of stamp duty will need to be paid.
If you’re buying a property with a short lease, you may struggle to get a mortgage and extending the lease can be expensive. See YourMoney.com’s guide on Buying a property with a short lease for more information.