Stamp Duty Land Tax (SDLT) is a progressive tax levied as a percentage of the property’s purchase price. There are various reliefs within the SDLT tax regime, each having its unique objective and purpose, such as Multiple Dwelling Relief, First Time Buyers Relief, Relief on purchasing uninhabitable property, building companies buying an individual’s home, employers buying an employee’s house etc.
Stamp Duty Land Tax relief for first-time buyers was introduced through Budget 2017 & become applicable on residential property purchases on 22 November 2017. The relief applies to house purchases in England and Northern Ireland and is unavailable in Wales and Scotland. Land Transaction Tax is applicable in Wales, whereas Land and Building Transaction Tax is applicable in Scotland.
Conditions/Rules for Claiming First Time Buyer Relief
A first-time buyer is an individual who has never owned a Freehold or has a leasehold interest in a residential property in the UK or anywhere else in the world & intends to live in the property as their only and main residence.
Relief is available where the relevant consideration for the residential property is less than or equal to £625,000.
The legislation covering first-time buyers’ relief can be found in Schedule 6ZA, to Finance Act (FA) 2003.
First-time Buyer relief provides substantial SDLT savings to first-time buyers, but following conditions need to be fulfilled to claim the relief:
1. Only Available to Individual
The relief is available only to individuals. All the purchasers, including joint purchasers, must be individuals and first-time buyers to claim the relief. No relief is available if the purchaser is a company or limited liability partnership (LLP).
For example,
Alexander wants to purchase the property Jointly. The Joint owners are Alexander and his Company, Transaction Square. Even if Alexander is a First-time buyer, the relief is unavailable as Transaction Square is a company.
2. Purchase of Single Dwelling
Relief is only available regarding purchasing a major interest in a single dwelling. Purchasing more than one dwelling in a single transaction will not give rise to relief. It will be important in some cases to determine whether premises consists of one or more than one dwelling.
It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building, including independent access and domestic facilities
For example,
Mr Andrew and Mrs Heather, husband, and wife, purchased two residential properties worth £615,000 in a single transaction. In this case, though the property’s value is below the limit of £625,000, they still can’t claim first-time buyer relief. However, they can claim other reliefs such as Multiple Dwellings Relief.
3. Never owned an interest in a residential property
Interest can be owned or acquired through purchase, gift, or inheritance. The relief is not available where the purchaser or, in the case of Joint purchasers, each of them has owned an interest in a residential property in the United Kingdom or anywhere else in the world.
For the joint purchase of a residential property by husband and wife, both must be first-time buyers, and each should not have owned a dwelling.
For example,
Michael lives in rented accommodation but owns a dwelling which he has rented out. He is looking to purchase a property in his name. In this case, he won’t be able to claim the relief as he already owns a dwelling.
4. Property Acquired for Residential Use
The property must be acquired for residential purposes and should not be intended to be acquired for commercial purposes. Residential property includes buildings or parts of buildings that are to form a dwelling, together with the garden or grounds, as well as land intended for such use.
Therefore, a first-time buyer buying the property to rent out will not be entitled to the relief. Further, the relief is not available to purchase non-residential or mixed-use properties.
For example,
Linda is planning to purchase a commercial property and has never owned an interest in residential or commercial property. Though she has never owned an interest, she won’t be able to claim relief as the property under consideration is commercial.
5. Intention to Occupy the Dwelling as a Main Residence
A main residence is a place where an individual generally resides or lives. A property usually stops being your main residence when you stop living in it. The intention to occupy the dwelling as the main residence is paramount to claim the first-time buyer relief.
It is not necessary that the purchaser must occupy the property immediately following the purchase. At the transaction’s effective date, there must be a clear intention to occupy the dwelling as the purchaser’s only or main residence.
For example,
Harry and his girlfriend Megan, both first-time buyers, are buying a property jointly. Only Harry intends to use the property as the main residence. The relief would not be available as Harry and Megan must intend to use the property as their only or main residence.
6. The relevant Consideration is not more than £625,000
Relief is only available where the relevant consideration for the transaction is not more than £625,000.
Relevant consideration will include all the normal amounts considered in working out the chargeable consideration for SDLT, but the value of any rent payable under a lease is not considered.
For example,
Mr Paul purchased a property worth £750,000. In this case, since the value of the property exceeds £625,000. Paul is not eligible to claim the first-time buyer’s relief.
7. Not a Linked Transaction
Linked transaction refers to those transactions that include the same buyer and seller or those closely associated with either party & that forms part of a single scheme.
First-time buyer relief in the case of the linked transaction is generally not available. However, relief can be claimed in case of a linked transaction where there is the purchase of a garden, grounds or interests or rights in land that exists for the benefit of the dwelling. It is worth noting that total consideration for the above linked transaction should not exceed £625,000.
For example,
A house with a garden is Jointly purchased by a husband and wife who are first time buyers.
They structured the deal in such a way that they first bought the house for £425,000 and later the garden for £50,000. In such cases, first-time buyer relief is available as total consideration is £475,000, well below the threshold limit of £625,000.
SDLT Rates for First-Time Buyers
First-time buyers are given concessional rates of SDLT for UK and non-UK residents. The SDLT rates vary for UK residents and non-UK residents.
An extra 2% surcharge is added to all residential rates of SDLT for Non-UK Residents. The relief cannot be claimed if the purchase price is more than £625,000 & SDLT need to be paid at the standard rates on the total purchase price.
| Slab | Tax Rate (UK Residents) | Tax Rate (Non-UK Residents) |
|---|---|---|
|
0 to £425,000 |
0% |
2% |
|
£425,000 to £625,000 |
5% |
7% |
SDLT Rates for First Time Buyer UK Resident
The SDLT rates for first-time buyers who are UK residents are lower than non-UK residents.
For UK residents, where the relief is claimed, SDLT is charged at 0% on the first £425,000 of consideration and then at 5% on any remainder of consideration so far as not exceeding £625,000.
For Example,
If you are UK resident purchasing a property as a first-time buyer for a price of £600,000, your stamp duty will be calculated as under:
- 0% on the first £425,000
- 5% on the remaining £175,000 amounting to £8,750
- Total SDLT amounting to £8,750.
SDLT Rates for First Time Buyer Non-UK Resident
First-time buyer relief is available to non-UK residents as well. SDLT is charged at 2% on the first £425,000 of consideration and then at 5% on any remainder of consideration so far as not exceeding £625,000.
For Example,
If you are non-UK resident purchasing a property as a first-time buyer for a price of £600,000, your stamp duty will be calculated as under:
- 2% on the first £425,000 amounting to £8,500
- 5% on the remaining £175,000 equalling £12,250
- Total SDLT amounting to £20,750.
Due to additional surcharge of 2%, non-UK residents must pay £12,000 more SDLT on purchase of property worth £600,000.
Process to Claim First Time Buyer Relief
Once all the conditions explained above have been satisfied, first time buyer relief must be claimed through Stamp duty and land tax (SDLT) return.
No additional information is required to be furnished to HMRC. However, code 32 needs to be mentioned in the reliefs field of the return.
Submission and Payment of Your SDLT
The responsibility to submit the return and pay the tax due on the property purchase is on the buyer himself. Usually, people use a solicitor or legal conveyancer to act on their behalf.
The timeline to submit and pay the SDLT return is within 14 days of the transaction’s effective date. The effective date is when the transfer is complete or when the contract is substantially performed. Failure to submit or pay the SDLT within 14 days will attract penalties and interest charges.
Penalties/Interest for Late Filing SDLT Return
The penalty for late filing of SDLT return would be as under:
- The penalty is £100 for returns filed within three months of the filing date.
- If it exceeds more than three months of the filing date, the penalty would be £200.
- Late filing or failure to file a return within 12 months of the filing date results in a tax-based penalty of up to 100% of the tax due.
- After HMRC issues a formal notice requiring a return to be delivered after the filing date, failure to comply after the specified period (which may not be less than 30 days) incurs a daily penalty of up to £60 per day, subject to tribunal order.
Note: Taxpayer has the right to appeal with HMRC within 30 days of receiving formal penalty notice providing the reason with supporting materials.
Interest accrues on unpaid SDLT tax from the due date of payment of SDLT tax until the payment date in full.
Interaction with additional SDLT rules
The SDLT first-time buyer relief provides significant advantages to individuals interested in moving up the housing ladder.
Yet, its interplay with other SDLT rules can make its use more difficult. Hence, the first-time buyer relief needs to be read in conjunction with other SDLT rules & facts which are explained below:
1. Purchase of additional properties
The SDLT first time buyer relief can not be applied to the transaction if the buyer is purchasing an additional property.
For example. it includes purchase of second homes. In such cases, the buyer would be liable for the higher rates for additional dwellings as per schedule 4ZA FA 2003.
2. Mixed use Properties
A mixed-use property has both residential and non-residential components. However, only residential properties qualify for the SDLT first-time buyer rebate.
As a result, the relief is unavailable to purchasers of mixed-use properties.
3. Multiple Buyers
All purchasers of a property must be first-time buyers for the purchase to qualify for the exemption.
The exemption is not applicable if one of the purchasers has previously owned a property. The standard SDLT rates would apply.
4. Transfer of Property
SDLT first-time buyer exemption is exclusively available for the purchase of residential property.
Therefore, the relief does not apply if a property is transferred, for instance, as a gift or in a will, because in these instances, no purchase occurs.
5. Married couples & civil partners
Married couples & civil partners are treated as a single unit for SDLT Payment & hence they are entitled to one main residence between them.
In case of joint ownership of the property to be bought by husband & wife, where one of them say wife is a first-time buyer & husband is not, they can’t claim First Time buyer relief.
6. Alternative Finance Arrangements
It is possible to make a claim for relief if a dwelling is acquired by through an alternative financing arrangement.
However, the entitlement to relief is determined in relation to the “person” who is entitled to occupy the property because of the arrangements referred to in sections 71A and 73 FA 2003, and not in relation to the financial institution that is the purchaser of the dwelling.
Hence, the test for first time buyer is applied to the individual.
7. Shared Ownership scheme
The SDLT rules for approved shared ownership properties operate differently than the ones that would apply if you were buying a freehold or a conventional leasehold property.
The first-time buyer is also available for purchases of qualifying shared ownership property.
Under a shared ownership scheme, the buyer could pay SDLT in stages or on the property’s full market value, also known as Market value election.
8. Buy-to-Let Property
Buy-to-let property is bought to rent out the property. To claim the relief, first-time buyers should buy the property to occupy it as their main residence.
Hence, if the property is completely rented out, the relief is not available.
However, relief is available if the buyers occupy the property and some of the rooms within the property are rented out.
Conclusion
To sum up, first-time buyer relief is part of the Government’s wider housing market reform to encourage homeownership by reducing the upfront costs for first-time buyers and helping them climb the housing ladder. It addresses the address affordability issues faced by first-time buyers.
However, the first-time buyer relief scheme is more complex than it seems. We at UK Property Accountants help you to navigate the rules within the scheme and advice you on SDLT Saving.
Our services extend beyond just claiming first-time buyer relief. We’ll provide comprehensive financial planning advice to help you make the most of your newfound homeownership status. From budgeting to long-term tax strategies, we’re committed to your ongoing financial success.
