Stamp Duty Changes for First Time Buyers

13 Mar 2018

by Helen Thring

The 2nd of November 2017 marked a significant turning point for first-time buyers in England and Wales, as the UK government introduced substantial savings on Stamp Duty Land Tax (SDLT). For those looking to get onto the property ladder, this new policy could provide much-needed financial relief, especially for those with limited funds for purchasing a home. The new stamp duty exemption applies to first-time buyers purchasing properties up to £500,000, with homes priced at £300,000 or below being entirely free of SDLT. For properties priced above £300,000, SDLT charges will only apply to the portion of the property price that exceeds that threshold.

This change in policy provides a significant boost to first-time buyers, as the table below illustrates:

Key Conditions for Eligibility

While the stamp duty waiver offers great savings, there are certain conditions that first-time buyers must meet to qualify for the relief. These conditions are as follows:

1. You must never have owned a Freehold or Leasehold property before – Whether in England, Wales, or anywhere else in the world. This rule applies to both primary and secondary residences. If you have ever owned a property, even as a gift or inheritance, you would not be eligible for this SDLT relief.
2. Anyone purchasing the property with you must also be a first-time buyer – This is crucial for joint purchases. If you are buying a home with a partner or a friend, they must also meet the same criteria of having never owned a Freehold or Leasehold property. Otherwise, the property purchase would not qualify for the first-time buyer SDLT waiver.
3. The property must be your main residence – The property that you are buying must be intended as your main home. This means that properties bought as second homes or buy-to-let investments would not qualify for the SDLT exemption.
4. Shared Ownership properties are included – If you are purchasing a property through a formal shared ownership scheme, you will only pay SDLT on the portion of the home that you are buying. This can help to reduce the upfront cost of purchasing your first home. However, it is important to note that informal shared ownership agreements, such as buying a property with a family member or a friend outside of a formal scheme, are not included in this SDLT relief.

These eligibility criteria apply not just to properties in the UK but also to any property owned anywhere in the world. If you or your co-purchaser have previously owned property abroad, you would still be excluded from claiming first-time buyer SDLT relief.

Shared Ownership Schemes and SDLT

For first-time buyers purchasing through formal shared ownership schemes, the SDLT relief also offers significant savings. When buying through these schemes, buyers only pay SDLT on the portion of the home that they are purchasing. This can make the purchase of a shared ownership home even more affordable, especially for those who are looking to get onto the property ladder without buying a home outright.

However, it’s important to note that this exemption does not apply to informal shared ownership arrangements, such as when you buy a property jointly with a family member or friend outside of a formal scheme. Only formal shared ownership homes offered by registered providers are eligible for SDLT relief under this scheme.

Potential Impacts of the SDLT Waiver

The SDLT exemption for first-time buyers is undeniably good news for those looking to buy their first home, as it offers substantial savings. By removing or reducing SDLT, buyers can now allocate more of their budget towards a deposit or other upfront costs, which can make the dream of homeownership more achievable. For example, a first-time buyer purchasing a home priced at £300,000 would save £5,000 in SDLT under the new rules, which could instead be used towards furnishing their new home or other essential expenses.

However, there is also the possibility that these savings could drive up property prices in certain areas. With more first-time buyers being able to afford homes in the £300,000 to £500,000 range, competition for properties in this price bracket could intensify. In an open market, this increased demand could lead to higher prices, especially for properties valued just under the £500,000 threshold.

This could also be seen as good news for existing homeowners who are selling properties in this price range. With more buyers vying for homes that fall under the £500,000 limit, sellers could potentially achieve higher sale prices. As a result, the SDLT exemption could inadvertently benefit homeowners as much as it helps first-time buyers.

Long-Term Benefits of the SDLT Exemption

In addition to the immediate financial savings, the SDLT relief could also have long-term benefits for the housing market. By making homeownership more accessible to first-time buyers, the exemption helps to stimulate demand at the lower end of the market. This, in turn, could encourage the construction of more affordable homes, as developers seek to meet the increased demand from first-time buyers.

Moreover, by reducing the upfront costs of buying a home, the SDLT waiver could help to improve long-term financial stability for first-time buyers. With less money spent on SDLT, buyers can put more of their savings towards building equity in their home, which can help to provide financial security in the years to come.

Conclusion

The SDLT exemption introduced in November 2017 represents a major opportunity for first-time buyers in England and Wales. By removing SDLT for properties priced up to £300,000 and reducing it for properties up to £500,000, the government has significantly reduced the upfront costs of buying a home. This change in policy offers significant savings for first-time buyers, potentially making homeownership more achievable for many.

However, while the SDLT relief provides a financial boost to buyers, it could also drive up competition for properties in the £300,000 to £500,000 range. As a result, existing homeowners could benefit from higher property prices in this segment of the market.

For first-time buyers looking to take advantage of the SDLT exemption, it’s important to act quickly and make the most of this opportunity before house prices potentially rise. Whether you’re buying a home outright or through a shared ownership scheme, the SDLT relief can help to make your first home purchase more affordable and financially secure.