A number of changes to Stamp Duty Land Tax (Stamp Duty) in recent years have meant that what was once a relatively straightforward tax to calculate is now much more complex, requiring careful consideration of HMRC’s Regulations in conjunction with an individual purchaser’s specific circumstances. This article will seek to summarise the main aspects of the First Time Buyer relief introduced by the Government in November 2017 as well as the Higher Rate of Stamp Duty payable on purchases of additional residential properties introduced in April 2016.

 

What is Stamp Duty?

 Stamp duty is a lump sum tax payable by a purchaser when buying a residential property, when over a certain price. The amount of Stamp Duty payable will depend upon the price of the property.

 

What is Residential Property? 

For the purposes of Stamp Duty, HMRC define Residential Property or a “dwelling” as a building or part of a building used or suitable for use as a dwelling. The definition includes buildings under construction, being built or adapted for use as a dwelling. Any garden or grounds belonging to the dwelling are also included.

 

What is First Time Buyer Relief? Am I a First Time Buyer?

In the 2017 Autumn Budget the Chancellor of the Exchequer announced that first time buyers would be eligible to relief from Stamp Duty. The relief came into effect on 22^nd November 2017 and means that first time buyers purchasing their first home for up to £300,000 will not pay any Stamp Duty! To put this into perspective, prior to 22^nd November 2017 on a house purchase at £160,000 a first-time buyer would have had to pay £700 in Stamp Duty whereas now they would not have to pay anything, meaning a significant saving for many. Where the purchase price is between £300,000 and £500,000 the first-time buyer will not pay Stamp Duty on the first £300,000 but will pay 5% Stamp Duty on the amount over £300,000.

To avail of the relief all of the purchasers must be first time buyers and must intend to occupy the dwelling as their only or main residence. In order to qualify as a first time buyer a purchaser must not, either alone or with others, have already owned a residential property anywhere in the world. You should be aware that owning a property or a share in a property does not necessarily mean that you must have purchased it. For example, if a person has inherited or been gifted a property they will not be eligible for First Time Buyer Relief.

 

Higher Rate Stamp Duty for Purchases of Single Dwellings

 

Since 1^st April 2016 HMRC have imposed a higher rate of stamp duty on purchases of additional residential properties by both individuals and companies. The main target of this higher rate is purchases of second homes and buy-to-let properties.

The higher rates are outlined below:

Purchase price	Rate
up to £125,000	3%
over £125,000 to £250,000	5%
over £250,000 to £925,000	8%
over £925,000 to £1.5 million	13%
over £1.5 million	15%

 

A purchaser will be liable for the higher rate of Stamp Duty if at the end of the day of the purchase the following four conditions are met:

·         Condition A – the chargeable consideration is £40,000 or more;

·         Condition B – the dwelling is not subject to a lease which has more than 21 years to run on the date of purchase;

·         Condition C – the purchaser owns a major interest in another dwelling anywhere in the world which has a market value of £40,000 or more and is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling; and

·         Condition D – the dwelling being purchased is not replacing the purchaser’s only or main residence.

It is also worth noting that for the purposes of property ownership married couples are seen by HMRC as one unit. Therefore, if one spouse or civil partner already owns a property, any subsequent purchase by either person will be classed as a purchase of an additional property.

You won’t have to pay the higher rates if you sell your main home on the same day you buy your new home. However, if you sell your main home after you purchase your new home you’ll need to pay the higher rate upon completion of the purchase. You may be entitled to claim a refund of the surcharge if your old home is sold within 3 years of buying your new home.

 

The above is a brief and generalised overview of some of the main provisions of First Time Buyer Relief and the Higher Rate of Stamp Duty. For more information or advice on Stamp Duty specific to your circumstances please contact a member of our Property Team.