If you’re a parent thinking of helping your child to buy their first home the new stamp duty land tax (SDLT) relief is great news, but there are a few traps that you should watch out for.
What is the new SDLT relief?
As Philip Hammond announced in the Autumn Budget in November 2017, the new relief means that no SDLT is payable on the first £300,000 of the purchase price and the rate will be 5% between £300,001 and £500,000.
That’s potentially a saving of £5,000 if your child is buying their first home.
What are the conditions?
- The purchasers can’t have currently or previously owned (wholly or partly) another dwelling anywhere in the world, even if they have not lived in it
- The purchase price of the house can’t be above £500,000
- The purchase is for only one dwelling which your child intends to live in.
What should you be aware of?
The joint purchase trap
If your child is looking to buy their first home with their partner and one of them has already owned a property, the new relief won’t be allowed.
If possible the purchase should be made in the name of the buyer who has not owned a property before. This can be difficult where a mortgage is involved as the lender usually requires all those involved in the loan to appear on the property deeds as owners.
The parent trap
As parents helping your children to get on the property ladder, it’s not uncommon to have equity in the property. It provides you security for the debt and gives you a share of any increase in the property’s value. However, this arrangement would fall foul of condition one above meaning stamp duty would become payable.
A possible solution is for you to give them a loan rather than have a share of the property. A loan agreement can be drafted so that the amount of interest payable is linked to the growth in value of the property, but deferred so that it’s payable only when the property is sold.