Buying a home with a relative but worried about stamp duty?
A lot of people I advise about mortgages are getting help from a family member to buy their property. Often that person is intending to give them cash or use the equity in their home as a deposit or even go on a mortgage with them so that their income can be taken into account. There are many mortgage options available these days to help customers in these situations. One question that regularly is comes up when discussing such scenarios is around Stamp Duty Land Tax (SDLT) and whether they will still be exempt.
Since 2017 the UK Government changed the rules on SDLT as part of its strategy to support first time buyers and restrict the buy to let market. One of the most positive things it did was to exempt first time buyers from having to pay SDLT but in some cases it has had the opposite affect. From November 2017, first-time buyers in England, Wales and Northern Ireland will no longer have to pay SDLT on properties worth up to £300,000. If the property is worth between £300,000 and £500,000, you will pay no SDLT on the first £300,000, but will pay the standard 5% on the remaining amount.
From 1st April 2016 however, anyone buying a property who already owns another property (and will still own that property after they complete on their purchase) will have to pay enhanced SDLT. That's a staggering additional 3% in enhanced SDLT on top of normal stamp duty!
As a result, if a parent or relative (who owns and intends to keep another property) seeks to help you by buying a property with you, not only will you cease to be exempt from SDLT, you will also have to pay enhanced SDLT as well.
So, is there any way that someone who already owns a home can help a first time buyer to buy a property without SDLT having to be paid? We one way is through the use of a Joint Borrower Sole Proprietor mortgage. With this type of arrangement an applicant and a sponsor can jointly go on a mortgage to buy a property and both parties' incomes can be used to assess how much can be borrowed but only one party (the one who does not own another property) goes on the deeds and owns the property. As a result they are eligible to relief from stamp duty land tax.
For more details please call us at 0117 370 4231.