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Tax Relief for First Time Buyers – Understanding the Rules in the UK

Published by Merisha Shrestha
Published Date: May 25, 2023

Purchasing a property is an exciting milestone, especially for first-time buyers in the UK but it often comes with financial challenges. Fortunately, the UK government offers various tax relief measures specifically designed to assist buyers in their homeownership journey.

One such relief measure is First-time Buyers' relief, which aims to make homeownership more accessible and affordable for individuals purchasing their first property in the UK.

Understanding the rules of First-time Buyers' relief is crucial for making informed decisions and maximising the benefits available. In this article, we will explore the key rules that first-time buyers in the UK should be aware of.

Defining First-Time Buyers

The term "First-Time Buyers" refers to individuals who are purchasing a residential property for the first time.

These are individuals who have not previously owned a major interest in any property, either individually or jointly with others, anywhere in the world. This includes inheritance, gifts, and properties acquired through alternative finance schemes.

Eligibility Rules for First-Time Buyers' Relief

First-time Buyers' relief is a valuable tax relief measure that helps reduce the financial burden for individuals purchasing their first property in the UK. To qualify for First-time Buyers' Relief, following eligibility criteria must be met:

reduction of financial burdens with first time buyers relief

#1 First-Time Buyers’ Status

To be eligible for First-time Buyers' relief, you must be a first-time buyer. This means you should not have previously owned or had a major interest in any residential property, whether in the UK or abroad.

#2 Property Value not more than £625,000

The property's purchase price must be £625,000 or below to qualify for First-time Buyers' relief.

If the property exceeds this threshold, the relief will not be available, and you will be subject to the regular Stamp Duty Land Tax (SDLT) rates.

#3 Intended Residential Property

The property you are purchasing must be intended as your main residence. It should be the place where you plan to live and reside. If you are purchasing a property for investment purposes or as a second home, you will not be eligible for First-time Buyers' relief.

#4 Limited to Individuals

First-time Buyers' relief is exclusively available to individual purchasers. This means that the relief cannot be claimed by companies or limited liability partnerships (LLPs). To qualify for the relief, all purchasers, including joint purchasers, must be individuals and meet the criteria of being first-time buyers.

#5 Purchase of Single Dwelling 

The relief for first-time buyers is specifically applicable to the purchase of a significant interest in a single dwelling. It does not apply when purchasing Multiple Dwellings in a single transaction.

Therefore, it is essential to assess whether a property constitutes a single dwelling or multiple dwellings in certain cases.

#6 Not a Linked Transaction

A linked transaction refers to transactions involving the same buyer and seller or closely associated parties that are part of a single scheme. In such cases, first-time buyer relief is typically not applicable.

However, relief can be claimed for a linked transaction if it involves the purchase of a garden, grounds, or interests or rights in land that are connected to the dwelling. It is important to note that the total consideration for the linked transaction must not exceed £625,000.

SDLT Rates and Thresholds

looking at rates and thresholds for SDLT in the UK

The Stamp Duty Land Tax (SDLT) rates and thresholds differ for first-time buyers compared to other buyers. Under the relief, first-time buyers benefit from reduced SDLT rates and higher thresholds. This means that you may pay less or no SDLT on the portion of the property's value that falls within the relief's criteria.

Slab

Tax Rate(UK Residents)

Tax Rate(Non-UK Residents)

0 to £425,000

0%

2%

£425,000 to £625,000

5%

7%

Therefore, non-UK residents are subject to an additional 2% surcharge on the residential rates of Stamp Duty Land Tax (SDLT).

SDLT Return and Reporting

When claiming First-time Buyers' Relief, it is crucial to understand and adhere to the reporting rules set forth by HM Revenue and Customs (HMRC). Proper reporting ensures that you can benefit from the relief and avoid any penalties or inaccuracies in your tax filings.

Stamp Duty Land Tax (SDLT) Return

To claim First-time Buyers' Relief, you must complete an SDLT return and provide accurate information about the property transaction.

The SDLT return is a legal requirement and must be submitted to HMRC within the specified time frame, which is typically 14 days after the completion of the property purchase.

Declaration of First-time Buyer Status

In your SDLT return, you will need to declare your eligibility as a first-time buyer. You must provide the necessary information and details to confirm that you meet the criteria for the relief.

This includes confirming that you have not previously owned or had a major interest in any residential property, both in the UK and abroad.

Accurate Calculation of SDLT

When completing the SDLT return, ensure that you calculate the SDLT liability accurately based on the rules and rates applicable to your property transaction.

If claiming First-time Buyers' Relief, make sure to apply the correct relief rates and thresholds to calculate the reduced SDLT amount accurately.

First-Time Buyer's Relief Calculator

Find out if you are eligible for relief on buying first property with our easy to-use First time relief calculator

Supporting Documentation

HMRC may request supporting documentation to verify your eligibility for First-time Buyers' Relief.

This can include evidence of your identity, proof of residency, and any other documents that establish your first-time buyer status. It is essential to keep records of these documents and provide them promptly if requested by HMRC.

Conclusion

First-time Buyers' Relief offers valuable financial support and incentives to help aspiring homeowners fulfill their dreams of property ownership. However, the rules for First-time Buyers' Relief can be complex, especially when considering how it interacts with other Stamp Duty Land Tax (SDLT) regulations.

At UK Property Accountants, we understand the complexities involved and are here to support you in accurately completing your SDLT return, ensuring strict adherence to reporting rules, and optimizing your eligibility for relief. Fill out our First Time Buyer Relief Assessment Form and Get Peace of Mind.

Merisha Shrestha
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