SDLT relief for first time buyers – is it value for money?
14 June 2023
Historically, for a lot of first-time buyers the additional cost of stamp duty land tax (SDLT), which applies in England and Northern Ireland, had been an additional financial barrier to owning their own home. However, in November 2017 a new SDLT relief was announced for first-time buyers with the key objective to incentivise property purchases by first-time buyers by reducing the associated upfront costs. A similar, but less generous, relief also applies in Scotland in respect of land and buildings transaction tax, whilst no equivalent relief is available in Wales for land transaction tax.
Broadly, for a purchase to qualify for the relief, the purchaser is required to have not previously owned an interest in a residential property in any part of the world. Additionally, they must also intend to occupy the property as their main residence.
This relief initially provided a full exemption from SDLT for all qualifying property transactions for consideration of less than £300,000 and the 5% tax rate applied between £300,000 and £500,000 for property purchases up to £500,000 (these thresholds have since increased from September 2022 to £425,000 and £625,000 respectively).
A recent government review found that, in the period November 2017 to November 2018, the relief has increased transactions (by first-time buyers) by 11% for transactions between £125,000 and £300,000 and by 18% for transactions between £300,000 and £500,000, when compared to the volume of first-time buyer transactions that would have taken place in absence of the relief being introduced.
It has often been claimed that introducing SDLT reliefs simply results in an increase in the price paid for a home, thereby benefitting vendors rather than purchasers. However, this report estimates that the prices paid by new buyers only increased by 1.04% in the £125,000 to £300,000 band, with a 0.37% price increase for property purchases in the £300,000 to £500,000 band. This suggests that the measure appears to be benefitting the group it was intended to help. The question is, should the government be extending the scheme?
If the current or future governments have intentions to help first time buyers get on the property ladder, guaranteeing the longevity of the scheme, or making alternative relief provisions, would appear to be a must. However, with all taxes, if the relief is to be extended, as it was in September 2022, any decrease in tax receipts will undoubtedly need to be picked up by other taxpayers who may not feel they should be subsidising buyers of more expensive homes.
There are a number of positive factors to consider going forward and how this may play out for the property market. With a good uptake in users of the first-time buyers’ relief, 0% deposit mortgages being reintroduced and a drop in the property market, this could pique the interest for buyers looking to buy their first home.
Broadly, for a purchase to qualify for the relief, the purchaser is required to have not previously owned an interest in a residential property in any part of the world. Additionally, they must also intend to occupy the property as their main residence.
This relief initially provided a full exemption from SDLT for all qualifying property transactions for consideration of less than £300,000 and the 5% tax rate applied between £300,000 and £500,000 for property purchases up to £500,000 (these thresholds have since increased from September 2022 to £425,000 and £625,000 respectively).
A recent government review found that, in the period November 2017 to November 2018, the relief has increased transactions (by first-time buyers) by 11% for transactions between £125,000 and £300,000 and by 18% for transactions between £300,000 and £500,000, when compared to the volume of first-time buyer transactions that would have taken place in absence of the relief being introduced.
It has often been claimed that introducing SDLT reliefs simply results in an increase in the price paid for a home, thereby benefitting vendors rather than purchasers. However, this report estimates that the prices paid by new buyers only increased by 1.04% in the £125,000 to £300,000 band, with a 0.37% price increase for property purchases in the £300,000 to £500,000 band. This suggests that the measure appears to be benefitting the group it was intended to help. The question is, should the government be extending the scheme?
If the current or future governments have intentions to help first time buyers get on the property ladder, guaranteeing the longevity of the scheme, or making alternative relief provisions, would appear to be a must. However, with all taxes, if the relief is to be extended, as it was in September 2022, any decrease in tax receipts will undoubtedly need to be picked up by other taxpayers who may not feel they should be subsidising buyers of more expensive homes.
There are a number of positive factors to consider going forward and how this may play out for the property market. With a good uptake in users of the first-time buyers’ relief, 0% deposit mortgages being reintroduced and a drop in the property market, this could pique the interest for buyers looking to buy their first home.
Michaela Norman
Associate Director
AUTHOR
Michaela Norman
Associate Director