The “Bank of Mum and Dad” lifeline and the Stamp Duty Land Tax trap

An accounting, tax and advisory practice have said that flagship measures introduced by the Government could be pricing first-time buyers out of the market.

Blick Rothenburg state that whilst the measures may have initially been introduced to assist those hoping to take their first step onto the property ladder, the changes to stamp duty land tax could actually be hindering those it’s designed to help.

The practice also highlighted the further problems facing those looking to buy their first home, with many having to turn to family and friends to fund their purchase.

Denise Yau, a tax manager at the firm said: “Due to a toxic combination of rising house prices, the squeeze on wages, high rents, stricter affordability tests for mortgages and higher deposits, the ‘Bank of Mum and Dad’ has become more important than ever to help first-time buyers get a foot on the property ladder.”

“In fact, some reports indicate that nearly three in five under 35s now need assistance from their parents. But this lifeline can come at a price.”

To recognise the difficult property market, the Government has introduced various Stamp Duty Land Tax (SDLT) reliefs and initiatives. The most recent of these was introduced by Chancellor Philip Hammond on 22 November 2017, with the change structured as a SDLT relief for first-time buyers purchasing homes costing up to £500,000, with no SDLT due on the first £300,000 of consideration.

Denise added: “Whilst the various initiatives and reliefs can therefore be commended to some extent, this can present a significant problem for some property transactions due to how the rules are drafted.”

“The issue arises as banks often require parents’ names to be on the mortgage and Title Deed for first-time buyers because, in practice, it can be difficult to recover funds if they are only named as guarantors.”

“Not only does this usually scupper the ability to qualify for the first-time buyer relief (as the parents are not themselves first time buyers), if the parents’ already own a home themselves, the entire purchase would then be subject to the additional 3% SDLT rates.”

Denise concluded by stating: “The SDLT bill could, therefore, increase from £nil to £14,000 for a property costing £300,000. Usually, SDLT of £14,000 would only be for a purchase of a property for £480,000. Whilst we are aware that some mortgages are available which do not require the parents name to be on the Title Deed, the number of banks offering this is more limited, with the rate of interest usually higher.”

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