First-time buyer relief may reduce the stamp duty land tax (SDLT) that a first-time buyer pays when they buy their first home in England or Northern Ireland. A similar scheme applies in Scotland for Land and Buildings Transaction Tax (LBTT), but there is no first-time buyer relief from Land Transaction Tax in Wales. This article focuses only on SDLT relief.
The SDLT relief for first-time buyers takes the form of a higher residential threshold. The normal residential threshold is £125,000. However, this is increased to £300,000 for first-time buyers buying their first home costing £500,000 or less.
Where the relief applies, no SDLT is charged on the first £300,000 of the purchase consideration, with the balance of the consideration (up to £500,000) liable to SDLT at 5%. Where the consideration is more than £500,000, the relief does not apply; first-time buyers pay SDLT as for other buyers to the extent that the consideration exceeds £125,000.
Betty is a first-time buyer. She buys her first property, a 2-bed house, in June 2022 for £280,000, which she will live in as her main home. As the consideration is less than £500,000, first-time buyer relief applies. The consideration is below the SDLT first-time buyer threshold of £300,000, so Betty does not have to pay any SDLT.
Libby also buys her first home in June 2022. The property costs £350,000. She too benefits from SDLT relief. No SDLT is payable on the first £300,000, but SDLT at 5% is payable on the remaining £50,000. She, therefore, pays SDLT of £2,500.
Eliza buys her first home, a flat in London, in June 2022. The flat costs £700,000. As the consideration is more than £500,000, she is unable to benefit from first-time buyer relief. Consequently, she must pay SDLT of £25,000 ((£125,000 @ 0%) + (£125,000 @ 2%) = (£450,000 @ 5%)).
In areas such as London, where property prices are high, many would-be first-time buyers are unable to afford a property. Further, where the price is more than £500,000, first-time buyer relief is not available.
To overcome some of these difficulties and to get onto the first rung of the ladder, an option may be to buy an investment property in a cheaper area. However, for first-time buyers wishing to take advantage of first-time buyer relief to cut their SDLT bill, there is a sting in the tail – the relief is not available unless the first-time buyer intends to occupy the property as their only or main residence. Consequently, first-time buyers buying an investment property to enable them to get on the property ladder must pay SDLT at the usual rates where the consideration exceeds £125,000.
First-time buyer relief is not available to all first-time buyers – only to those who are buying their first property for £500,000 or less to live in as the main home.
Partner note: FA 2003, s. 57B and Sch. 6ZA.