In our September issue of Tax Insider Professional, Malcolm Finney outlines the rules of first-time buyer relief from stamp duty land tax.
Stamp duty land tax (SDLT) is a tax charged on the acquisition of land/buildings in the UK, whether by a UK or non-UK resident. Currently, on an acquisition by an individual of residential property (as opposed to commercial or mixed-use property), the SDLT rates vary between 0% and 15%, or between 3% and 18% for those acquiring a second residential property, for example a buy-to-let.
First-time buyer relief
With a view to helping first time buyers, FA 2018 introduced the so-called ‘first-time buyer relief’ (FTBR). FTBR provides for a reduced rate of SDLT to apply on a purchase of residential property by a first-time buyer (as defined – see below) where the purchase – or completion - is effected on or after 22 November 2017. The reduced rate is 5%, which applies to purchase consideration above £300,000 up to £500,000; purchase consideration of £300,000 or less is charged at a nil rate and purchase consideration above £500,000 is simply charged at normal SDLT rates with no FTBR.
FTBR does not apply to a purchase of commercial or mixed property, only residential property (FA 2003, Sch 6ZA, para 1(2)). In addition, the purchaser must intend to occupy the purchased residence as their only or main residence (FA 2003, Sch 6ZA, para 1(4)). Hence, for example, the purchase of a buy-to-let or holiday home will not qualify. The term ‘purchaser’ used in the legislation is a little misleading, as it refers to the acquisition of a residential property whether such acquisition arises by way of a purchase for consideration (used in its normal layman sense) as recipient of a gift or, for example, by way of an inheritance.
A ‘first-time buyer’ is defined as an individual irrespective of age who has not previously purchased a major interest - freehold or leasehold interest - in a residential property, referred to in the legislation as a ‘dwelling’, whether in the UK or overseas (FA 2003, Sch 6ZA, para 6(1)(a) and (1)(b)).
Example: FTBR unavailable
Mary inherited a 25% interest in a residential property when her aunt died two years ago, and she is about to purchase for £350,000 her first home to live in as her sole residence.
FTBR is unavailable on her purchase as she is regarded as having previously ‘purchased’ a residential property.
In the case of a joint purchase, for example by co-habitees, friends or spouses, each of the purchasers must qualify as a first-time buyer for the transaction to qualify for FTBR.
Higher rate purchase
An often-overlooked provision which results in a denial of FTBR is where the purchase qualifies as a ‘higher rate’ transaction (FA 2003, Sch 6ZA, para 1(7)).
A higher rate transaction, that is one where the 3% SDLT supplementary charge applies, is one where at the date of completion of a purchase the purchaser already owns a major interest in another residence so on completion the purchaser owns a major interest in two or more residences (FA 2003, Sch 4ZA, para 3(4)(a)). Thus, for example, in the case of a joint purchase FTBR would be denied if either purchaser already owned a major interest in a residential property.
The joint purchase provisions and the higher rate provisions each need to be carefully examined with respect to any proposed purchase, as there are subtle differences between the two sets of provisions.
Try to advise clients to avoid a joint purchase where feasible, or at least be aware of the other purchaser’s interests in other residential property, if any, before proceeding.