The Chancellor recently announced that stamp duty would be scrapped for first-time buyers looking to purchase a property worth up to £300,000, and would be reduced for properties worth up to £500,000 to cater for buying in London and other expensive areas. Susan Ward, residential conveyancing expert with Mooney Everett Solicitors in Ormskirk, Lancashire explains how the new rules work in practice.
‘There are many reasons why first-time buyers struggle to get on the property ladder, and undoubtedly having to pay stamp duty is one of them. On the purchase of a house or flat for £200,000, stamp duty before the new rules came into effect would have added another £1,500 to the money you would have needed to raise to make the move into your first home’, says Susan. ‘The tax break announced by the Chancellor in his Autumn budget avoids the need to find this extra money and therefore offers first-time buyers a real boost’.
What is stamp duty?
Stamp duty is a tax that most people must pay when buying a home or business premises.
For people looking to buy a home, the tax is payable on any property bought for more than £125,000. The rate at which the tax must be paid varies depending on the agreed purchase price:
|Purchase price||Rate of stamp duty
|Up to £125,000||0 %|
|£125,001 to £250,000||2 %|
|£250,001 to £925,000||5%|
|£925,001 to £1.5 million||10%|
|Above £1.5 million||12%|
If you already own a property and are looking to buy more, you will usually have to pay three per cent extra on top of the above rates.
Stamp duty must be paid within 30 days of the property purchase being completed, which usually means 30 days from the date on which you get the keys. Interest and penalty charges can be added to your tax bill if you fail to make payment when due.
For all property purchases, over £40,000, a stamp duty land tax form must be completed so that a record of the transaction exists, together with confirmation of whether any tax is due and, if not, why.
New rules for first-time buyers
No stamp duty is payable provided the following conditions are met:
- the purchase completes on or after 22 November 2017;
- the purchase price paid is £300,000 or less;
- you, and anyone else you are buying with, are first-time buyers; and
- the property will be occupied as your only or main residence.
A reduced amount of stamp duty will be payable where the price paid is between £300,001 and £500,000. In this case, there will be no stamp duty charged on the first £300,000 but a tax charge of five per cent will be due on the balance. So, if the agreed price is £450,000, stamp duty at five per cent will be charged on £150,000, giving an amount due of £7,500.
Where the purchase price is £500,001 or more, there will be no help available and stamp duty will have to be paid at the normal rates set out in the table above.
If you have completed on a property purchase since 22 November in ignorance of the new rules, and therefore have mistakenly paid stamp duty that was not due, you can apply to Her Majesty’s Revenue and Customs to claim a refund.
The new rules apply to purchases in England and Northern Ireland. They also apply to purchases in Wales until 1 April 2018 when land taxation tax replaces stamp duty land tax for Welsh property transactions.
Definition of a ‘first-time buyer’
The definition of a ‘first-time buyer’ is limited to someone who has never, either on their own or with someone else, owned a major interest in a residential property anywhere in the world. This includes having previously inherited residential property under the terms of someone’s will or having been given such property as a gift. The inclusion of the words ‘major interest’ is designed to exclude minor past ownership, such as ownership of a leasehold property subject to a lease with less than 21 years left on it.
The problems caused by shared ownership
The rules on stamp duty for properties bought through a shared ownership scheme are complicated and whether the new rules apply will depend on whether you:
- decide to pay stamp duty based on the market value for the entire property, knowing that by doing so you will not have to pay any further stamp duty if you decide to increase the proportion of your share; or
- decide to pay stamp duty based only on the share you initially acquire, knowing that if the value of that share is £125,000 or less there will be no stamp duty payable immediately, but appreciating that if the total rent you have to pay on the part of the property you do not own adds up to more than £125,000 over the term of your lease, or alternatively if you choose to acquire a bigger share in the property which takes the total amount you own to 80 per cent or more, than a charge to stamp duty may arise at a later date.
In simple terms, relief will only be available when the market value approach is taken.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.