1st-time buyers save £159m on stamp duty relief but cash help may risk exemption

Since the first-time buyer relief on Stamp Duty Land Tax (SDLT) was introduced almost a year ago, 69,100 newcomers to home ownership have taken advantage of the exemption, saving a total of £159 million.

First-time buyers in England no longer have to pay the tax on any property valued at up to £300,000 and pay only 5 percent on anything valued above that up to £500,000. Anything beyond the half-million mark pays the same rate as other buyers. Similar exemptions apply in Scotland and Wales.

While most first-time buyers are providing their own finance, including deposit and mortgage, and buying well within the exempted price range, there is often confusion about when a first-time buyer will have to pay Stamp Duty Land Tax.

For example, the Bank of Mum and Dad (BoMAD) provides up to £6 billion in gifts and loans to family members to buy property. This can affect the first-time buyer’s status when it comes to HMRC, who collects the tax on behalf of the Government.

To qualify for the stamp duty exemption, a first-time buyer – or a couple buying together – must not own or have owned any other property anywhere else in the world. And the property they are buying MUST be their only or main residence.

So, if you’re looking to purchase your first home and are receiving either a gift or a loan from your parents, other relatives or friends to do so, you need to ensure that doesn’t affect your eligibility for stamp duty relief.

An experienced conveyancing solicitor will be able to advise on how best to proceed with a home purchase that protects both your interests as a first-time buyer and your family’s financial investment in your home.

The most obvious way to protect an investment is to add the name of everyone who has a financial interest to the title deeds. But if your folks already own a home, you as a first-time buyer would immediately be ineligible for stamp duty relief. And your parents might even have to pay a higher rate of stamp duty in that case because their investment in your property could be considered the purchase of a second home by HMRC. Second homes attract a higher rate of SDLT.

A Deed or Declaration of Trust, which is a legal document detailing everyone with a financial claim to a property, would also likely exempt you as a first-time buyer from not paying stamp duty and attract that second home tax premium.

Gifting the money for a deposit to a child is one way parents can help maintain their offspring’s first-time buyer status. Or they could offer a loan that comes with a “second charge” on the property – this ensures that, after the mortgage lender is repaid when the property is sold, the parental loan would be repaid from any equity.

For first-time buyers aiming to purchase with the help of their parents or family, getting clear and expert advice from a conveyancing solicitor on their SDLT obligation is essential. Homeward Legal works with a panel of experienced property lawyers across England and Wales who will deal with your home transaction quickly and efficiently.

Talk to our team now on 0800 038 6699. We’re open seven days. You can also get a no-obligation quote for first-time buyer conveyancing services that come with a no-completion, no-fee guarantee.