Q My two daughters and I are the joint owners of a property for which we paid cash (so there is no mortgage involved). One of my daughters lives in the house and is now in the process – with her husband – of taking out a £120,000 mortgage so that she can buy her sister and me out (the house is valued at £180,000). On the strength of the £60,000 that she will get from her sister for her share of the house, my other daughter is also thinking of taking out a mortgage to buy her first home. Although neither of my daughters has had a mortgage before – and so in my view are first-time buyers – we have been told that they will both need to pay stamp duty on their mortgages. Is this correct?
A No, it is not correct that your daughters will have to pay stamp duty land tax (SDLT) on their mortgages because SDLT is not charged on mortgages but on what is called “consideration given” for a property which usually means what was paid for a property (or a share of a property). It is also incorrect to think that your daughters should be eligible for first-time-buyer relief from SDLT – which lets first-time buyers off SDLT on the first £300,000 of properties costing up to £500,000 – because, strictly speaking, they are not first-time buyers because they have previously owned property. In the words of HM Revenue & Customs (HMRC): “In order to count as a first-time buyer, a purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling situated anywhere in the world.”
The good news for the daughter who is buying you and her sister out of the property she is living in is that because the amount she is paying you both is less than the SDLT nil-rate limit of £125,000, she won’t face an SDLT bill. Her sister, however, will have to pay SDLT if she ends up buying a property which costs more than £125,000.