An increasing number of people are relying on their parents for financial help when buying their first home, in large part due to the significant gap between average wages and average house prices in many parts of the UK.
While it is common now for parents to help out their children with money towards a deposit, a growing number of parents are going one step further and actually buying properties with their children, with both parent and child’s name being on the mortgage and title dead.
While this can allow young people to buy a property when otherwise they wouldn’t be able to, and give parents a potentially good investment if property prices continue to rise, it can create an issue when it comes to stamp duty.
First time buyers’ stamp duty exemption
Under new rules introduced in the Chancellor of the Exchequer’s 2017 autumn budget, most first time buyers are now exempt from paying Stamp Duty Land Tax. This is a tax paid on all land transactions in England and Wales.
Previously, first time buyers were only exempt from stamp duty if their property was worth £125,000 or less, while now anyone buying a first property worth up to £300,000 will avoid stamp duty. Additionally, anyone buying a first home worth over £300,000 but less than £500,000 will only pay stamp duty on the value of the property over £300,000.
The Treasury estimates that this means 80% of first time buyers will now avoid stamp duty altogether, while a further 15% will pay a reduced rate. With the average stamp duty bill in the UK being £1,660, this can make a significant difference to the cost of buying a first home.
The problem for parents buying a home with their child
The issue for anyone planning to buy a home with their child is that every person with their name on the title deed must be a first time buyer in order to qualify for the stamp duty exemption. This means you will likely have to pay the full rate of stamp duty if buying a property with your son or daughter.
There is one potential option that can allow you to help your child get a mortgage without being an owner of the property yourself, thus legitimately avoiding the stamp charge. There is a mortgage product known as a “joint borrower sole proprietor” mortgage, which can allow you to combine your income with that of your offspring for the purposes of a mortgage affordability calculation.
This allows them to borrow more, but they will be listed as the sole owner of the property, so they can still qualify for stamp duty relief. It is worth noting, however, this type of mortgage is quite a niche product and only available from a handful of lenders. It also means you will be jointly liable for the cost of the mortgage, but without any stake in the property.
Get reliable conveyancing advice and support
Bird & Co Solicitors is a long-established law firm offering conveyancing services for properties across England and Wales from our 3 East Midlands offices. Our highly experienced residential property team can help you plan your property purchase in the most efficient way for stamp duty and any other issues, and ensure the deal goes ahead smoothly.
We are accredited by the Law Society’s Conveyancing Quality Scheme, meaning you can be sure that we operate to the highest possible standards and can provide fast, efficient and cost-effective conveyancing for your first home.
To find out more about our conveyancing services, call today on 01476 591711 or use our contact page to find details of your nearest office.