Stamp Duty relief for first time buyers
Following the Autumn Budget on 22 November, first time buyers would have been forgiven for thinking Christmas had come early. One of the biggest highlights of Phil Hammond’s Autumn Budget was the announcement that Stamp Duty Land Tax (SDLT) for first time buyers would be abolished for first time purchases up to £300,000 – with immediate effect!
The government recognise the desire and need to get first time buyers onto the property ladder and realise the cash constraints many first time buyers face. Measures were already in place to help first time buyers prior to the budget announcement, with exemption on the first £125,000 of the property value. Increasing this threshold to £300,000 represents the largest ever increase in the point at which first time buyers become liable for SDLT.
A first time buyer is defined as someone who has never owned freehold or leasehold interest in a dwelling before and who is purchasing their only main residence. If the property is being bought jointly, all purchasers would need to be first time buyers. It is important to note that worldwide residential property is included when considering whether someone is a first time buyer.
SDLT is charged at 5% over £300,000, up to £500,000. The normal SDLT rates apply over £500,000 (5% to £925k, 10% on property between £925k to £1.5m and 12% above £1.5m). The SDLT rates are applied on the proportion of the price in the relevant band. For example, a property bought for £400k will only pay £5k of SDLT (£300k at 0% and £100k at 5%).
This means that all first time buyers will benefit from the relief. With the average property for first time buyers in the UK (outside of London) costing £208k, it means that the average first time buyers will pay no SDLT (previously £1,660). As expected, the average price for a first time buyer in London is nearly double that of the rest of the UK, with average London prices of £410k. Whilst Londoners will still have to pay SDLT, the relief introduced means that the charge is nearly halved from £10.5k to £5.5k. It is estimated that 95% of first time buyers who pay SDLT will benefit, including almost 80% in London.
Whilst there is no doubt the relief available will be welcome and beneficial, some may point to the fact that the proportion of saving is small compared to the cost of the property. It begs the question: is the SDLT relief actually sufficient motivation (and help?) for first time buyers to take the first rung of the property ladder? I doubt it. If you have access to sufficient funds to get onto the property ladder, £1k-£5k saving (which represents around 1% of the property transaction) isn’t likely to make or break the deal; it does make it a lot sweeter though!