Avoid a cliff edge for first time buyers

RELIEF

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.

Pro advice 1.?HMRC?s online SDLT calculator ?has been updated to take account of the relief where applicable.

Pro advice 2.?The relief is available only on the purchase of a single dwelling. A purchase of more than one dwelling in a single transaction will not attract relief. A self-contained part of a building, with its own access and domestic facilities, will be considered as a separate and individual dwelling.

Pro advice 3.?The purchase must be of your client?s 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.

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.

Example.?Bill makes an offer of ?499,000 to buy his first property, budgeting for an SDLT charge of ?9,950. This is verbally accepted by the seller. However, they then state that someone else has offered ?505,000 and demands that Bill matches it. Not only will he have to find an extra ?6,000 for the purchase, the SDLT charge will increase to ?15,250.

So what might be done in Bill?s position?

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 – your client can?t simply agree with the seller that a battered old fridge is worth ?5,000 to reduce SDLT. Your client could of course employ a value, but this is unlikely to be cost effective. Instead, advise your client to look at similar items on sites like eBay to estimate the second-hand value, and print off listings to keep as evidence.

Pro advice.?If a large number of chattels are included, it might still be worthwhile for your client to agree an apportionment. Even if they aren?t just over the cliff edge, it could still save some SDLT.