No stamp duty for first time buyers
Chancellor Philip Hammond announced in his Budget yesterday that Stamp Duty Land Tax (SDLT) is to be abolished with immediate effect for first time buyers. Sarah Brooks, Residential Property Partner, explains the practicalities of the move from the Chancellor and what happens next for first time buyers.
2017 Budget announcement for housing
Housing has been a much promoted topic for the Government as they strive to provide adequate affordable housing and enable more people onto the property ladder. “We saw changes to SDLT last year with the introduction of the 3% surcharge on second properties, so it is not surprising to see SDLT on the agenda again,” begins Sarah.
Currently, SDLT depends on the price of the property; those between £125,000 and £250,000 require 2% SDLT on the portion between £125,000 and £250,000 with properties above £250,000 requiring a payment of 5% for the portion above £250,000 up to a value of £925,000 when the rate increases again. “Following the Budget yesterday, first time buyers will be exempt from paying SDLT if they are purchasing a property up to £300,000,” continues Sarah. “If the property is worth between £300,000 and £500,000, then the first £300,000 will be taxed at 0% and the remainder taxed at 5%. This should help a number of first time buyers in London where the average price of a first purchase is £450,000. Figures show that this will leave 80% of all first time buyers with a much lighter bill at the end of their transaction.”
Other housing objectives announced in the Budget included:
- A long term goal to build 300,000 homes a year by the mid 2020s
- Government support of £44billion to boost construction skills
- 100% council tax premium on empty properties
- Review as to the reasons behind delays in permitted developments moving forward
How does SDLT affect the housing market?
According to a report by the Centre for Economics and Business Research, 146,000 more property sales could have taken place in the last five years without SDLT. “There are many barriers for first time buyers, and SDLT has been one of them, as demonstrated in this report,” explains Sarah. “However, it is important that the Government continues to review the position for first time buyers, as for many it is the deposit that proves a larger barrier. Schemes such as Help to Buy have proven successful and led to more first time buyers entering the market, but demand is still higher than the supply of affordable houses, the key word being ‘affordable’. There have also been concerns about the lack of consideration for those at the top of the property ladder looking to downsize; they are also liable to pay SDLT and the market depends on those to move to allow the rest of the market to move up.”
Even in the short time since the announcement the Government has defined the term “first time buyer”:
“In order to count as a first time buyer, a purchaser must not – either alone or with others – have previously acquired a major interest in a dwelling or an equivalent interest in land situated anywhere else in the world. This includes previous acquisitions by inheritance or gift or by a financial institution on behalf of a person under an alternative finance scheme. Relief is not denied by virtue of a previous acquisition as a trustee unless the purchaser was also a beneficiary of the trust. Relief is also not denied if the purchaser owns or has previously owned non-residential or mixed-use property, as long as that property did not include a dwelling. This restriction does not apply where the interest acquired was the grant or assignment of a lease with less than 21 years to run. If the property is purchased jointly, all the purchasers must meet these conditions.”
Sarah concludes “There are still many questions that need to be answered by the SDLT Budget Report, and we have already received many calls from our clients looking for clarification. While there may be some confusion in the coming weeks while we await the report, this is a step in the right direction for first time buyers to make the way on to the property ladder more accessible.”
If you have questions about the decision on SDLT, your tax advisor will be in a position to explain your own position. Alternatively, you can contact Sarah or the Property teams at Warner Goodman by emailing firstname.lastname@example.org.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.