Autumn 2017 Budget stamp duty help

Stamp duty bonanza for first-time home buyers

Nil-rate stamp duty band for first-time buyers extended to £300k.

From 22 November 2017 first-time buyers paying £300,000 or less for a residential property will pay no stamp duty land tax (SDLT). This measure does not apply in Scotland, as SDLT was devolved to the Scottish Government on 1 April 2015. This measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Welsh Assembly.

First-time buyers paying between £300,000 and £500,000 will, as before, pay SDLT at 5% on the amount of the purchase price in excess of £300,000 – a reduction of £5,000 on the total amount of SDLT they would have previously paid.

A first-time buyer is defined as an individual who has never owned an interest in a residential property in the UK or anywhere else in the world and who intends to occupy the property as their main residence.

First-time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.

The relief must be claimed in an SDLT return.

The revised rates and thresholds for residential property purchases worth £500,000 or less by first-time buyers will be as follows:

 

Portion of consideration

Current standard rate

Rate for first-time buyers

Up to £125,000

0%

0%

Over £125,000 and up to £250,000

2%

0%

Over £250,000 and up to £300,000

5%

0%

Over £300,000 and up to £500,000

5%

5%

Chancellor announces new lifetime ISA to help house buyers

LISA is potentially a valuable savings option. But how does it work and who is it aimed at?

From April 2017 a new savings product called LISA (Lifetime ISA) is available. It is designed to help young people save flexibly for the long-term throughout their lives. However, as with most financial ideas, the devil is in the detail.

The main benefits of the LISA are:
it is designed to work with existing ISA products and will be simple for savers to use
as with existing ISAs investment growth on savings and future withdrawals are tax-free
savers will be able to make LISA contributions (up to £4,000 in each tax year) and receive a bonus from the age of 18 up to the age of 50. Where the maximum is saved, this could mean a  £1,000 bonus each year from the government
there is a one-off 2017/18 bonus for those who also use the help to buy ISA – see below for more details.

Who is it aimed at?
To use the LISA the saver must be aged 18 or over but under 40.

How does the LISA differ from existing ISAs?
The Lifetime ISA is designed for two specific purposes:
for first-time buyers to use towards a residential property situated in the UK. This can be done at any time, provided the Lifetime ISA has been held for 12 months or more. However, it needs to be emphasised that the tax-free funds, including the government bonus, can only be used to buy a first home worth up to £450,000 at any time
to take out and use in retirement once the saver is aged 60. Once that age is reached the tax free funds can be used for ‘any other purpose’.

So the government is stressing the long term nature of the savings.

So far so good? Now for the complicated bit
As mentioned above, the devil is in the detail. Perhaps unsurprisingly the government has surrounded the LISA with rules and restrictions. These are important and need to be considered before an application is made:
Any contributions to a Lifetime ISA will sit within the overall £20,000 ISA contribution limit. However the government bonus will only be paid on contributions of up to £4,000 per tax year.
Individuals will be able to transfer savings from other ISAs as one way of funding their Lifetime ISA. In line with existing rules, transfers from previous years’ ISA contributions do not affect that year’s £20,000 overall ISA limit.
Savers will be able to contribute to one Lifetime ISA in each tax year, as well as a cash ISA, a stocks and shares ISA, and an Innovative Finance ISA, within the new overall ISA limit of £20,000 from April 2017.
Saving into a Lifetime ISA will be similar to saving into any other ISA. Qualifying investments in a Lifetime ISA will be the same as for a cash or stocks and shares ISA. Individuals will be able to transfer their Lifetime ISA within 30 days between providers to get the best deal, in line with the existing ISA rules.

Withdrawing money for a first time purchase – how does it work?
In addition to the details above, there are also some interesting points to note when the funds are withdrawn:
If the saver is buying their first home with someone else they can each use a Lifetime ISA and each benefit from their government bonus.
The detailed rules are based on those for the Help to Buy ISA. This includes that the withdrawal must be for a deposit on a property for the first time buyer to live in as their only residence and not buy-to-let.
The saver has to inform their ISA manager of the house purchase, who will claim any additional bonus due from HMRC, and then the withdrawal will be paid direct to the conveyancer. If a purchase falls through after a withdrawal has been made then the funds will be returned to the same ISA manager by the conveyancer and will not count against the annual contribution limit.

Interaction with the existing help to buy ISA
The existing help to buy ISA will be open for new savers until 30 November 2019, and open to new contributions until 2029. However, they are not stand-alone and can be used alongside the LISA.

Savers will be able to save into both a Help to Buy ISA and a LISA, but will only be able to use the government bonus from one of their accounts to buy their first home. This gets complicated but is worth exploring. For example:

If an individual holds a Help to Buy ISA and a LISA they may:
use their Help to Buy ISA with its government bonus to purchase their first home, and save their LISA with its government bonus for retirement
use their LISA with its government bonus to purchase their first home, and withdraw the funds held in their Help to Buy ISA to put towards this purchase without the government bonus
use their Help to Buy ISA, including its government bonus, to purchase their first home and withdraw funds from their LISA to put towards the purchase. In this instance the government bonus on the LISA savings would be returned to government and the individual would be required to pay a charge.

One off bonus for 2017/18
During the 2017-18 tax year only, those who already have a Help to Buy ISA will be able to transfer these funds into a LISA and receive the government bonus on those savings.

What is the overall impact of the LISA for savings?
The LISA is potentially a very valuable savings tool, mainly due to the government bonus. However, for a long-term saver the LISA would need to be compared to a normal pension to see which is best for them.

The comparison of the two products is a complex issue beyond the scope of this article and has different outcomes depending on things like self-employment, auto-enrolment etc. So we strongly advise that members should recommend to their clients that they visit an Independent Financial Adviser for more guidance.

New help for home buyers announced in 2013 budget

The Chancellor announced a £5.4 billion package of financial support to tackle long-term problems in the housing market at Budget, including the launch of Help to Buy - which offers two schemes aimed at helping those who want to get on, or move up, the housing ladder. This FAQ answers some of your questions about the scheme.

Help to buy

 
Help to Buy is made up of two schemes – “equity loan” where the Government will loan you up to 20% of the value of your new build home and “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits.


Why has the Government set up these schemes?
The Government wants to help more people across the country make the aspiration of home ownership a reality. Help to Buy is aimed at increasing the supply of low-deposit mortgages as well as new housing.

Can I buy a house using Help to Buy?
If you have a 5% deposit and want to buy a new build home, you’ll be able to access the Help to Buy: equity loan scheme from 1 April 2013. If you want to buy a property which is either new build or an existing property, the Help to Buy: mortgage guarantee will be available from January 2014.

What if I don’t have a deposit – can I still get a mortgage?
To access a Help to Buy product, buyers will need a minimum 5% deposit.


Am I guaranteed to get a mortgage? Are there any criteria I need to meet?
For both schemes, borrowers will need to meet appropriate tests to ensure they can pay back the mortgage, as well passing their chosen lender’s credit and affordability checks.


How much can I borrow?
Subject to meeting the eligibility criteria and affordability checks, you’ll be able to use either Help to Buy scheme to purchase a property with a value up to £600,000.

Can existing homeowners access the scheme?
Yes. Both schemes are available to home movers as well as first-time-buyers, subject to meeting the relevant eligibility criteria.

Can I get an interest only mortgage using Help to Buy?
Help to Buy is only available on capital repayment mortgages.

Can I buy a property using Help to Buy and rent it out?
Help to Buy will only be available on properties which are occupied by the individual or individuals taking out the mortgage.

How do I go about accessing these schemes?
Help to Buy: equity loan will be available from 1 April 2013. Buyers will be able to access this through participating housebuilders and HomeBuy agents.
Help to Buy: mortgage guarantee will be available from January 2014. The Government will provide further details about the scheme later in the year.

Can I get a mortgage through an incorporated company?
Help to Buy mortgages are only available to an individual or individuals rather than incorporated companies.

Can I still get a NewBuy mortgage?
Yes. This scheme is still in place and remains open to buyers.
Questions on Help to Buy: equity loan

What is the Help to Buy: equity loan scheme?
The Government will provide buyers with an equity loan of up to 20% of the value of a new build property. The loan is interest free for the first five years. From year six a fee of 1.75% is payable on the equity loan, which rises annually by RPI inflation plus 1 %.

When will I be able to get a Help to Buy: equity loan?
Help to Buy: equity loan will be available from 1 April 2013.

When will I have to pay back my equity loan?
The equity loan can be repaid at any time within 25 years (or the terms of the mortgage), or on sale of the property.

Why can’t I get an equity loan on a property that’s not new build?
Help to Buy: equity loan is focused on new build properties only. Buyers wanting to purchase an existing property may be interested in the Help to Buy: mortgage guarantee.

What is the Help to Buy: mortgage guarantee?
Subject to the final scheme design, the Government will make available £12bn of guarantees to lenders which will be sufficient to support £130 billion of high loan to value mortgages. The purpose of the scheme is to increase the availability of mortgages for buyers with small deposits.

How does the scheme work?
The Government will provide lenders with the option to purchase a guarantee on the high loan-to-value portion of the mortgage. This guarantee will incentivise lenders to offer a greater number of mortgages to buyers with small deposits.

When will I be able to get a Help to Buy: mortgage guarantee?
Help to Buy: mortgage guarantee will be available from January 2014.

Will the Government be guaranteeing my mortgage payments for me?
No. Under Help to Buy: mortgage guarantee, the Government will provide guarantees to lenders on a proportion of the mortgage. If a borrower’s property is repossessed, the Government will cover a proportion of the losses suffered by lenders.

What type of property can I buy?
Help to Buy: mortgage guarantee will be available on all residential properties in the UK, up to a value of £600,000.

I have a deposit which is larger than 20% – will I still be able to get a Help to Buy: guarantee mortgage?
Help to Buy: mortgage guarantee will only be available to buyers with deposits between 5% and 20%. Mortgages are already widely available for those with a deposit of 20% or more. 


Will I be able to get a Help to Buy: mortgage guarantee on a property that’s not new build?
Help to Buy: mortgage guarantee will be available on both new build homes and existing properties.

Who should I contact about getting a Help to Buy: mortgage guarantee?
The Government will provide further details on how to get a Help to Buy: mortgage guarantee later this year. Help to Buy: guarantee mortgages will not be available until January 2014.

Will lenders have to offer me a guaranteed mortgage?
No. Lenders may choose whether to use the guarantee or not.

What will the interest rate be on Help to Buy: mortgage guarantee?
Interest rates on products supported by Help to Buy: mortgage guarantee will be set by lenders. The Government will not be involved in setting the price, which is a commercial decision for individual lenders.

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