My friends will help with my deposit – how much stamp duty do we pay?

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Q I am thinking about buying my first house in Cambridge where I currently live. The market here is out of control and I am on my own. This means that with savings and a mortgage I can’t really afford anything decent.

Fortunately I have nice friends who would help me by putting some cash towards the deposit. For them, it would be a long-term investment, and either I will repay them at some point in the future or they will get their money back when I sell the house, according to the percentage they put in.

For instance, I would put £250,000 and they would contribute £100,000. I would be the only one living in the house and I wouldn’t pay any rent to them (as I said, they are nice friends). They already own their house.

The thing we don’t understand is the stamp duty. The examples I found are for married or separated couples or friends living together. My understanding is that, with me being me a first-time buyer, I shouldn’t pay any stamp duty, but it is not clear how much they would pay.

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A If your friends just give you the £100,000 but don’t insist on being registered as joint owners with you at the Land Registry the stamp duty land tax (SDLT) position is pretty straightforward. As a sole first-time buyer you would qualify for 0% SDLT on the first £300,000 of the purchase price and – if the total is less than £500,000 – 5% on the amount over £300,000. So your SDLT bill would be £2,500.

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However, I am hoping for their sakes that your friends are nice but risk averse when it comes to investing money. It would be financial folly simply to hand over a large lump sum without having any security that they will get it back. The easiest way to get this would be for you and your friends to buy the house jointly as tenants in common so that you each own a distinct share in the property.

The downside of this low-risk approach is that you wouldn’t get first-time buyer relief from SDLT because it’s only available if all joint purchasers are first-time buyers and your friends aren’t. And because your friends already own property, you would have to pay SDLT at the higher rates which are 3% on the first £125,000 of the consideration (purchase price), 5% on the next £125,000 then 8% on the remaining £100,000 of the proposed purchase price of £350,000. This would be a total bill of £18,000.

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