First Time Buyer Stamp Duty Relief – Definition, Overview & FAQ

What is a first time buyer stamp duty relief?

Definition: In the UK, the first-time buyer stamp duty relief is a benefit
introduced to help those purchasing their first property by providing a reduction
in the Stamp Duty Land Tax (SDLT) they need to pay.
The UK government introduced the first-time buyer stamp duty relief in the
November 2017 Budget. It aimed to help first-time buyers by reducing or
eliminating the SDLT on their property purchases.

To qualify, buyers must:

1. Be purchasing their first ever property.
2. Intend to use it as their main residence.

With this relief:

1.  First-time buyers don’t pay any stamp duty on properties up to £300,000.
2.  For properties costing between £300,001 and £500,000, they pay 5% SDLT
   on the portion above £300,000.
3.  Properties above £500,000 don’t receive the relief, and the regular SDLT
   rates apply.

The relief must be claimed by the buyer or their solicitor when submitting the SDLT
return to HM Revenue & Customs (HMRC).

This relief has made homeownership more accessible for many by reducing the
upfront costs associated with buying a property.

What is Stamp Duty Land Tax (SDLT)?

Before proceeding, it’s important to note that “stamp duty relief” and “Stamp Duty
Land Tax (SDLT)” are not the same, though they are closely related concepts within
the context of UK property transactions.
Stamp Duty Land Tax (SDLT) is a tax levied on purchasing properties and land in
England and Northern Ireland.
The amount of SDLT paid depends on the property’s price and its use (e.g.,
residential vs. non-residential). Different tax rates apply to different price bands,
and there are also different rates for additional properties.
In essence, SDLT is the tax itself, while stamp duty relief represents specific
situations where the tax might be reduced or eliminated.

Explanation of SDLT

The origin of stamp duty in the UK dates back to 1694, during the reign of William
III and Mary II. Initially introduced as a temporary measure to fund war against
France, it became a permanent fixture due to its revenue-generating capacity. Over
the centuries, its application expanded, touching various legal and financial
documents.
By the 20th century, with changing economic scenarios and the growth of the
property market, the focus of stamp duty began to shift primarily towards property
transactions. Recognizing the need to modernize the system, the UK government
transformed the old stamp duty into the Stamp Duty Land Tax (SDLT) in 2003.
This new system was more structured and detailed, specifically targeting land and
property transactions in England and Northern Ireland.
Role in the UK Property Market:

1. Revenue Generation: One of the primary roles of SDLT is to generate
   revenue for the government. With the property market being a significant
   sector in the UK economy, SDLT contributes a substantial amount to the
   national coffers.
2. Market Regulation: SDLT can act as a tool for the government to control the
   property market. By adjusting rates or offering reliefs, the government can
   influence buyer behaviour. For example, higher rates for additional properties
   were introduced to curb the buy-to-let market and ensure housing
   availability for first-time buyers.
3.  First-time Buyer Support: Recognizing the challenges faced by first-time
   buyers in entering the property market, the government introduced SDLT
   reliefs. By reducing or waiving SDLT for such buyers, the barrier to entry is
   lowered.
4. Regional Development: SDLT policies can be used to encourage investments
   in specific areas. For example, areas undergoing regeneration might see
   incentives in the form of SDLT reductions to attract buyers.
5.  Reflecting Market Changes: Over time, SDLT rates and policies have been
   adjusted to reflect changing economic conditions. For instance, during
   economic downturns or pandemics, temporary reliefs or reductions might be
   introduced to stimulate the property market.

Defining a 'First-Time Buyer'

A ‘first-time buyer’ is an individual who has never owned a property or a share
of a property, either in the UK or anywhere else in the world, and is purchasing
their main residence.

Criteria for Being Considered a First-Time Buyer:

• No Prior Ownership: The individual must not have previously owned or held
  an interest in a residence, either alone or jointly with others.
• Worldwide Rule: This stipulation isn’t limited to the UK. If an individual has
  previously owned property abroad, they wouldn’t qualify as a first-time buyer
  in the UK.
• Primary Residence: The property being purchased should be intended as
  the individual’s main residence. It should not be a buy-to-let property or a
  second home.
• Joint Purchases: In cases where a property is being bought jointly, all buyers
  must meet the first-time buyer criteria to avail any related benefits or reliefs.

Common Misconceptions Clarified:

•  Inherited Properties: Some people think that if they inherit a property, they
  can still qualify as a first-time buyer. This is not the case. If you’ve inherited a
  property or a share of one, you would not be
•  Previous Property Sales: Selling a property doesn’t “reset” your status. If
  you’ve owned a property in the past and sold it, you’re not a first-time buyer.
•  Shared Ownership: Some believe that participating in shared ownership
  schemes doesn’t count as owning property. However, even if you’ve owned a
  part of a property through such a scheme, you wouldn’t qualify as a first-time
  buyer.
• Properties Abroad: Owning property outside the UK does impact your
  first-time buyer status in the UK. Some mistakenly think international
  property ownership is not considered.

Details of the First Time Buyer Stamp Duty Relief

The First Time Buyer Stamp Duty Relief was introduced to support those entering
the property market for the first time, making homeownership more accessible by
reducing the upfront costs.

1.  Thresholds and Rates:
   ○ For properties costing up to £300,000, first-time buyers pay no Stamp
   Duty Land Tax (SDLT).
   ○ For properties priced between £300,001 and £500,000, first-time
   buyers are exempt from SDLT on the first £300,000 but will pay the
   tax on the remaining amount.
   ○ Properties priced over £500,000 do not qualify for the relief, and
   first-time buyers must pay the standard SDLT rates.
2.  Eligibility Criteria:
   ○ The buyer must be a genuine first-time buyer, i.e., they’ve never
   owned a property or a share of a property in the UK or anywhere else
   in the world.
   ○ The purchased property must be the buyer’s only residence and not a
   buy-to-let investment or a second home.
   ○ For joint buyers, all parties involved must meet the first-time buyer
   criteria.
3.  Claiming the Relief:
   ● The SDLT relief for first-time buyers is typically claimed by the solicitor
   or agent handling the property purchase on the buyer’s behalf. They
   will fill out the SDLT return form indicating that the buyer qualifies for
   the relief.
   ● If the relief isn’t claimed at the time of purchase but the buyer
   believes they qualify, it’s possible to apply for a refund from HM
   Revenue and Customs (HMRC) later.
4. Duration and Changes:
   ● Tax benefits and schemes might be subject to changes in the annual
   budget announcements. Buyers should always check the latest criteria
   and rates before making a purchase.

Shared Ownership and Stamp Duty Relief

Shared ownership schemes in the UK offer a way for people to buy and rent a
property partially, primarily aimed at helping those with lower incomes get on the
property ladder.
However, as with any property purchase, there are stamp duty implications, and it’s
essential to understand how the First Time Buyer Stamp Duty Relief applies in these
situations.

1. Shared Ownership Stamp Duty Choices (before November 2018): Before
   November 2018, those entering a shared ownership scheme had two choices
   regarding Stamp Duty Land Tax (SDLT):a. Pay SDLT on the full market value of the property.
   b. Pay SDLT only on the share they are purchasing, but this would mean
   paying the tax on any rent paid to the housing association, which often
   proved more expensive in the long run.
2.  Changes after November 2018:a. From November 2018, the government announced changes to how SDLT is calculated for shared ownership properties for first-time buyers. These changes meant that first-time buyers of shared ownership properties would no longer pay SDLT on the first £300,000 of homes costing up to £500,000. This brought it in line with the First Time Buyer Stamp Duty Relief mentioned earlier.
3.  Option to Pay Later:a. If first-time buyers opt to pay SDLT only on the initial share they buy, they don’t pay SDLT on the rental portion. However, they will need to pay SDLT on future shares they purchase, if the total value crosses the SDLT thresholds.
4.  Backdating the Relief:a. In the 2018 Budget, it was also announced that the relief for thosewho purchased shared ownership properties since the last budget (22 November 2017) would be backdated. Meaning, if you paid SDLT on a shared ownership property purchase as a first-time buyer between 22 November 2017 and the 2018 Budget, you might be eligible for a refund.
5. Implications for Non First-Time Buyers:a. Stamp Duty Relief is specifically for first-time buyers. If you’ve owned property before and you’re entering a shared ownership scheme, you’ll typically pay the standard SDLT rates based on the property’s full market value or the value of the share you’re purchasing, depending on your choice.

For anyone considering shared ownership, it’s advisable to consult with a solicitor or
tax specialist. They can provide guidance tailored to individual circumstances,
ensuring you navigate the complexities of SDLT and take advantage of any reliefs
available.

Comparing SDLT in Different Regions

1. England and Northern Ireland SDLT
   
   a. Stamp Duty Land Tax (SDLT) is applied to property purchases in
   England and Northern Ireland.
   b. The amount of SDLT due varies based on the property price, type
   (residential or non-residential), and whether the buyer is an individual,
   a first-time buyer, or a company.
   c. First-time buyers get relief, paying no SDLT on properties up to
   £300,000 and reduced rates on properties costing up to £500,000.
2. Scotland: Land and Buildings Transaction Tax (LBTT)
   
   a. Scotland replaced SDLT with its Land and Buildings Transaction Tax
   (LBTT) in 2015.
   b. Like SDLT, the amount of LBTT due depends on the property’s price,
   but the tax bands and rates differ.
   c. Scotland also offers a first-time buyer relief, where first-time buyers
   pay no LBTT on properties up to £175,000.
3. Wales: Land Transaction Tax (LTT)
   
   a. In 2018, Wales introduced its Land Transaction Tax (LTT), replacing
   SDLT.
   b. LTT rates and bands are distinct from those in England, Northern
   Ireland, and Scotland.
   c. As of now, there’s no specific first-time buyer relief under LTT, but the
   tax bands are structured so that properties at the lower end of the
   market (which often include first homes) might incur little or no tax.

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