Getting onto the Property Ladder – The Tax Incentives

Buying a property is one of the biggest financial commitments an individual will ever make in their lifetime. A minimum deposit of 5% is typically required to secure a mortgage. To get a good mortgage interest rate however, you’ll often need more than 20% of the home’s value as a deposit, and more than 40% for the most favourable market-leading deals.

The number of young people living in the parental home has increased by 69% in the UK since 2007, with 4.6 million 18-34 year olds living at home in 2016, according to the Office for National Statistics (ONS). Prices have been on an upward trajectory for several years. That is only one aspect of buying which is making home ownership for first timers a major challenge, however the Government has been accumulating a portfolio of tax-incentives to ease the burden of climbing the property ladder for first time buyers, and we consider these here.

The Help-to-Buy ISA

The Help-to-Buy ISA was launched in the UK in December 2015 with the aim of helping younger people build up a deposit faster, to purchase their first home.

Savers can open the account with an initial deposit of up to £1,200 and then contribute up to £200 per month thereafter. A 25% government top up is applied at the point the saver acquires and occupies the property and this support is capped at £3,000 per individual. The property price must be less than or equal to £250,000 (£450,000 in London).

The deadline for opening an account is 30 November 2019; the deadline for making savings being 30 November 2029 and the deadline for claiming the Government bonus is 1 December 2030. No other ISA can be held at the same time, although steps can be taken if a cash ISA has already been opened.

Since its launch, just over 63,000 bonuses have been paid out, with an average value of £579, on about 45,000 properties. The scheme has been most popular in the north of England, and the Midlands.

The Lifetime ISA

The Lifetime ISA was launched in April 2017, the aim being to encourage young people to save, either for the money to be put towards a deposit for a house, if the saver has not owned before, or to save up for retirement. The scheme allows savers to save up to £4,000 a year, and the Government provides a 25% top up each year.

Only savers between the ages of 18 and 40 can use the scheme, and if they are using it as a deposit for a property, the home must not be worth more than £450,000. They must also occupy the property upon purchase and as with the Help-to-Buy ISA, can not merely hold it as an investment.

There is a maximum cap in Government top up of £88,000 if the recipient pays in the maximum amount each year, until they are 40.

With the cheapest average asking price for a home in the Barking and Dagenham Borough of London set at £312,248, first time buyers in London may find the regional purchase price cap of £450,000 a challenge when looking for a suitable property. As the Lifetime ISA has only been in existence for just over a year, it’s difficult to tell at this stage how effective an incentive it will be.

Stamp Duty Land Tax Relief for First Time Buyers

Since 22 November 2017, Stamp Duty Land Tax (SDLT) relief has been available to first time buyers on residential property purchases of £500,000 or less. The relief operates by imposing a 0% rate of SDLT on the first £300,000 of consideration, and a 5% rate of SDLT on the next up to £200,000 of consideration.

The result is that a purchaser qualifying for the relief will suffer £5,000 of SDLT on property valued at exactly £400,000, whereas under the general SDLT rates, £7,250 would have been suffered.

To qualify, it is necessary for the purchase to relate to either a freehold, or a leasehold interest of 21 years or more in a single dwelling. The purchaser must also live in the property and not have previously owned other property prior to the purchase.

Caution must be taken where there is parental assistance in the purchase of the property. Should a buyer be unable to secure a mortgage and the parents step in as joint mortgage holders, because the relief requires that all purchasers must qualify, and the buyer’s parents already own a home, the relief will be denied on the whole transaction.

Bank of Mum and Dad and the Inheritance Tax Saving

There are Inheritance Tax (IHT) efficient opportunities for parents to provide funds to children to help them with the step up onto the property ladder. Any wealth transferred during lifetime will fall out of the estate for IHT purposes, provided the parent has survived seven years from the date of transfer.

Alternatively, parents can make use of the various per-tax-year exemptions available which collectively can amount to £6,500 per couple, and in the first tax year in question, up to £12,500. Each taxpayer is permitted to gift up to £3,000 per tax year without it counting for IHT. If no such transfers have been made in the prior tax year, the unused exemptions for that year can be brought forward too. There is a small gifts exemption of £250 per individual per tax year also.

It is also possible to draw on unused income to make regular gifts if doing so doesn’t affect the parent’s standard of living.


It’s important to remember that in order to qualify for the first three incentives, all purchasers must be first time buyers and intend to occupy the property as their main residence to qualify for the relief. As there is a requirement not to have previously owned property as well, having an appreciation of the impact of worldwide historic property-holding interests will be key to establishing whether they meet the definition of a first-time buyer.

If you would like to discuss anything in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Construction & Real Estate team.

This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.