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You may by now have heard the news from the Autumn Budget that first-time buyers purchasing shared ownership homes will be eligible for first-time buyers relief. But what does this actually mean? We’ve set out below an overview of the law, the changes set out in the Budget, and how they might affect you.
First-time buyers relief
First-time buyer relief was announced in last year’s budget, and is available where the price paid for the property is £500,000 or less. When it is claimed, the first £300,000 is exempt from SDLT (Stamp Duty Land Tax), and you pay a rate of 5% on the portion from £300,001 to £500,000.
In order to be classed as a first-time buyer, you must be someone who has never owned an interest in a residential property anywhere in the world, and you must intend to live in the property as your main residence. All purchasers of the property must be first-time buyers for the relief to apply; if you are buying the property with your partner, and they’ve owned a property previously, you won’t be eligible.
Qualifying Shared Ownership Scheme
A common way for people to get on to the housing ladder is through the use of shared ownership schemes. A simple way to describe these schemes is as a part rent, part buy scheme. You purchase a share of the property and pay rent on the rest. You can then increase the share of your ownership by buying it from the housing association, and this is called staircasing. How this works will usually be set out in the terms of your purchase.
To be “qualifying”, it must be a scheme provided by approved bodies such as local authorities and housing associations, that were set up to help people by a home.
So how did these work together?
Prior to the new changes, if you were a first-time buyer purchasing through a shared ownership scheme, you were eligible for the relief when the lease was first granted, but only where you’ve elected to pay SDLT on the market value of the whole of the property. You would have still paid SDLT on the rent (if the total rent over the life of the lease is over £125,000).
If you were a first-time buyer, purchased through a shared ownership scheme, but decided to pay the SDLT in stages based on the share you were purchasing, the relief would not have been available to you, plus SDLT would have been payable on the rent, as above.
And what happens now?
As of 29 October 2018, the first-time buyer relief has been extended in two ways:
1. First-time buyers who purchase a property through a shared ownership scheme and wish to only pay SDLT on the share they’re purchasing, rather than on the market value of the whole of the property, will now be eligible for the relief providing they meet the relief requirements.
In working out whether the relief applies, the ‘price paid’ for the property will be based on the market value of the property, as stated in the lease, and this must be less than £500,000.
It is worth noting that the relief can only be claimed on the first purchase, and not on the ‘staircasing’ payments afterwards.
2. Whether or not first-time buyers choose to pay SDLT in stages, based on the share they’re purchasing, or as a one-off payment based on the market value of the whole property, they will not have to pay SDLT on the rent if they are eligible for the relief.
What if I purchased my property a few months ago?
The good news is that the Government has backdated the introduction of the extensions to the relief so that it applies to all purchased made since 22 November 2017. You will therefore be eligible for a repayment (how much depends on the individual circumstances) if:
1. You purchased a property through a shared ownership scheme, were a first-time buyer, and chose to pay SDLT in stages, rather than a one-off payment based on the market value of the whole of the property; or
2. You did claim the relief, but paid SDLT because of the value of the rent payable.
If you are eligible for a repayment, you have up until 29 October 2019 to apply.
Please get in touch with our Conveyancing team if you have any questions.