A new relief for first-time buyers was announced at the 2017 Autumn Budget, aimed at helping people onto the property ladder. The way the relief works creates a cliff edge if the price exceeds £500,000 – how might you avoid this trap?
The 2017 Autumn Budget announced a new stamp duty land tax (SDLT) relief. It applies where a first-time buyer purchases a dwelling for no more than £500,000 on or after 22 November 2017 for use as their only or main residence. Where the relief is claimed, no SDLT is payable on the first £300,000 of the price, while 5% is charged on the remainder.
The purchase must be the first major interest in a dwelling anywhere in the world – regardless of whether or not they ever lived in it. This includes any property acquired by inheritance or gift.
The Cliff edge
The new relief gives a first-time buyer a maximum tax saving of £5,000 when the property price falls within the range £300,000 to £500,000. There is then a sharp cliff edge, with no relief available at a price above £500,000.
Avoiding the cliff edge
Where the purchase price is just above £500,000, your client could look to allocate some of the price to any chattels that are being included as part of the sale. HMRC’s SDLT Manual confirms that whilst SDLT is payable on any fixtures, chattels (tangible moveable property) are not part of the land transaction and therefore no SDLT is payable on their value. Chattels that might be included will include things like carpets, free standing furniture, kitchen white goods (not integrated units) and removable fires. Fixtures are generally not chattels unless they are easily removed without causing damage.
Apportionment of value must be done on a just and reasonable basis or it won’t be effective – you can’t simply agree with the seller that a battered old fridge is worth £5,000 to reduce SDLT. Good advise is to look at similar items on sites like eBay to estimate the second-hand value, and print off listings to keep as evidence.