The stamp duty break for those taking first time buyers mortgages may go, following the June 2010 budget report published this week.
The June 2010 budget report states: “As announced in the Coalition Agreement, the Government will review the stamp duty land tax relief for first time buyers, taking into account its impact on affordability and value for money.”
The stamp duty break means that the 1% stamp duty levy does not apply to properties valued at less than £250,000. It therefore saves first time buyers up to £2,500 in stamp duty.
The stamp duty exemption was contained in the last budget of the previous government, and fixed for 2 years from March 2010. The Labour government had calculated that the break would cost the government £550m in lost revenues over the two years.
For properties over £250,000, stamp duty is phased in according to three tax bands. For properties from £250,001 to £500,000 stamp duty is 3%. From £500,001 to £1m the stamp duty is 4%. From £1m upwards, a new rate of 5% comes onstream in April 2011.
This means that first time buyers purchasing a property for £249,000 pay nothing (i.e. is currently exempt from paying duty which would have been 1%). However, someone taking a first time buyer mortgage for £250,001 is immediately hit with a 3% stamp duty bill of £7500.03.
Who is a first time buyer?
The definition of a first time buyer is someone who has never owned a property before – not just in the UK, but anywhere in the world. In terms of mortgages, therefore, the stamp duty exemption is available only to those taking first time buyers mortgages. For couples, both must fit the bill – i.e. you lose your status as a first time buyer mortgage customer, and must pay your stamp duty, if your partner has owned a property before.
The Revenue (HMRC) has recently replaced its simple Particulars Delivered form to make it more difficult for first time buyers to avoid stamp duty. While the Particulars Delivered form was a single sheet reporting names of buyer and seller and price paid, the new form is 6 pages long and records details of all elements of the sale.
This is because some buyers were reporting the price of the property at below the £250,000 threshold but then using a dubious excessive amount for ’additional cost for fixtures and fittings’ to make the real cost of the property much higher. First time buyers deals with an excessive charge for fixtures and fittings or other add-ons are likely to attract the attentions of the taxman, who can investigate a sale for up to 9 months after the deal is complete.
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