First Time Buyer Legal Guide – Part 3
Getting financial assistance from a family member?
It is very common for parents and other family members to help out with a property purchase, but there are a few things to be aware of from a legal and financial point of view. Financial assistance will generally be provided by way of a cash gift, or in some cases a parent will be a named purchaser to help with affordability from a mortgage point of view.
Some lucky First Time Buyers will be able to count on the famous ‘Bank of Mum and Dad’ for some financial assistance to help fund their property purchase. You should note that your mortgage lender will need to be aware of any family gifts that you are receiving to assist with the funding of the purchase. Your solicitor will also be required to do the following:
- Arrange for a gift declaration to be signed by the person making the gift to confirm that it is not a loan.
- To carry out identification verification in respect of the giftor; so be aware that they will need to provide identification documents to your solicitor.
- To establish the source of the money being gifted, and receive evidence showing it moving from their account into yours; the larger the amount being gifted the more detailed the checks may be. The giftor will be required to explain how they accumulated or otherwise acquired this money, so for example a solicitor would require more information if bank statements showed a large sum of money appearing in the giftor’s account one week and then being transferred into your account the next.
If you are receiving multiple gifts these steps will be necessary in respect of each giftor.
Please remember, these steps are required to ensure compliance with Money Laundering Regulations so please do not be offended by your solicitor’s requests in this regard.
Joint purchase with a family member
Purchasing with a family member, partner or friend is sometimes an option for people who can not achieve affordability to buy the house on the basis of their own salary. It can however have serious implications in respect of the rate of Stamp Duty Land Tax that you will have to pay. In the second part of our First Time Buyer guide we discussed the Stamp Duty Land Tax relief for First Time Buyers purchasing a house at £300,000 or under. However, when it comes to stamp duty, it is not enough that you are a first time buyer. All purchasers of the property must be a first time buyer in order for the exemption to be applied.
If someone you are purchasing with has previously owned a property, then Stamp Duty will be charged at the normal rate.
It can get worse however; if someone you are purchasing with currently owns another property that is their main residence, and they do not intend to sell it, you will be liable for stamp duty at a higher rate – which is 3% above the standard Stamp Duty rates (see part 2 of our guide). This is a very common scenario, as parents will often join in with a purchase to help their children meet affordability criteria, but will of course continue to live at their own residence.
To illustrate the differences in the various rates of Stamp Duty, please see the below example which involves the purchase of a house costing £140,000
Stamp Duty Threshold – £125,000
First Time Buyer Stamp Duty Relief Threshold – £300,000
|Buyer Status||Stamp Duty payable|
|First Time Buyer (Relief applies)||£0|
|One purchaser is a home mover and is selling their main residence (Normal rate)||£300|
|At least one purchaser owns another property and is not selling their main residence (Higher rate)||£4,500|
As you can see, the purchase of a £140,000 property with someone whose property ownership engages the higher rate of Stamp Duty will result in you paying £4,500 more than you would if all purchasers were first time buyers.
You can consult the Inland Revenue Stamp Duty Land Tax Calculator at https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro for assistance on calculating the applicable Stamp Duty for your new home.
In the last part of our legal guide for First Time Buyers we will be looking at a few tips to keep in mind when viewing a property.
In the meantime, if you would like to speak to one of our property conveyancing experts click here and a member of our team can get in touch at a time of your convenience.