(Co-written by Marie Langthorne, trainee Legal Executive and Heather Wiltshire, Chartered Legal Executive)
Recent years has seen many changes in how stamp duty land tax is calculated, long gone are the days of the simple percentage of the purchase price and the autumn budget has added further points to consider.
First time buyers
For first time buyers who are purchasing under £300,000 the relief means there is no SDLT to pay and for those purchasing above £300,000 but below £500,000, there is a 5% rate on anything above £300,000. This can reduce the SDLT payable by up to £5,000. However, as with the changes to second properties which were brought in in April 2016 things aren’t as straight forward as you might hope.
For starters the definition of a first time buyer is not as simple as you might think. The official definition is “an individual who has not previously purchased a major interest (e.g. a freehold or leasehold interest of 21 years or more) in a dwelling in England, Wales or Northern Ireland or its equivalent elsewhere in the world and who intends to occupy the property as their main residence”. This is then broken down into four conditions which need to be fulfilled to qualify for the relief:
- It must be a “major interest” in a single dwelling. That is simple enough to determine, the property being purchased must be residential (or at least part residential) and be a house or flat and if there is a lease involvement there must be at least 21 years left to run
- The purchase price must not exceed £500,000. If it does the relief cannot be applied
- All purchasers must be first time buyers and each purchaser must be intending to occupy the property as their only or main residence. Bad news for couples where one party has previously owned a property. Should any of the purchasers have either previously owned a property or do not intend to live in the property the relief is not available. Whilst not explicitly listed in the draft clauses, it would appear that having an interest in a property as a beneficiary of a trust would also exclude someone from the category of first time buyer.
- The transaction cannot be linked to any other transaction, unless the linked transaction consists of an interest in land which forms part of the garden or grounds of the property or an interest in or right over land subsisting for the benefit of the dwelling or the gardens of the dwelling. This is essentially a complicated way of saying the purchase cannot be a series of transactions, something which is unlikely to affect the average first time buyer.
Worth noting here, is should there be a later linked transaction which takes the consideration above £500,000 the relief is withdrawn and additional payment will be required.
Particularly good news for those who have been struggling to get a foot on the property ladder is the relief is available for purchases under a shared ownership lease or shared ownership trust. However, the relief is only available when the purchaser elects to pay SDLT on the full market value in a one-off payment up-front. This can potentially turn the options on SDLT payment on shared ownership into a total minefield and each individual case will need to be carefully considered on its own merits or there is a very real risk of unnecessary payment both at the time of the purchase and following future staircasing.
Changes to Higher Rate SDLT for additional dwellings
Whilst most media attention has focused on the relief for first time buyers, interestingly, amendments have been made to the higher rates which perhaps could be seen to correct previous oversights.
One of the key changes is the relief from tax due under the higher rates following a divorce where a court order is issued preventing the disposal of the former family home. Previously following a divorce or dissolution if the former family or matrimonial home was not to be sold, the former spouse or civil partner no longer living at the property would, somewhat unfairly, be subject to the higher rate SDLT on any subsequent purchase. The amendments mean if there is a court order preventing someone from disposing of their interest in a main residence this interest can be disregarded for the purpose of SDLT calculations.
Whilst the new relief and amendments are clearly good news for many, when considered with the other reliefs and options such as agricultural and multiple dwellings relief the room for error is high and conveyancers may now feel they need a client’s full life history and a crystal ball in order to make the most what is available for their client.
If you have a query as a result of this blog please email me.