Inheritance and First-Time Buyer Status: Top Five Questions Answered!

First-time buyers have a handful of key advantages to help them on the property ladder.  You could save thousands through SDLT relief and can benefit from Lifetime ISAs which can boost your savings for your first home by 25%.  

But are you still a first-time buyer if you inherit a property?

If you inherit a residential property, you are no longer classed as a first-time buyer, even if you never live in the property or only inherit a tiny share.  In order to qualify as a first-time buyer you cannot own, or have owned, a dwelling, regardless of how it came into your ownership.  

You would think because you haven’t actually bought the house that you would still be classed as a first-time buyer; unfortunately, this is not the case.    

Like most things property-related, it’s not always black and white.  In this article we’ll answer the top 5 questions on this topic so hopefully by the end we can all join in on a rendition of Johnny Nash’s “I can see clearly now”.

What is a first-time buyer?

Before we delve into the Q&A, it might be useful to understand exactly what a “first-time buyer” is…

You are typically a first-time buyer if…

It is safe to assume that you are a first-time buyer if you have never acquired an interest in a residential property.  You can “acquire an interest” in a property in the following ways:

• Purchasing a freehold or leasehold property
• Inheriting a property
• Being gifted a property, such as property purchased for you by parents or grandparents
• If you are a beneficiary of a trust which owns a property
• Property purchased on your behalf by a financial institution
• Grant or assignment of a lease (with 21 years + left to run)

It is worth noting that you are typically still a first-time buyer if the property you own, or have previously owned, is purely commercial with no living quarters attached to it (such as a restaurant, hair salon or shop).

You are probably not a first-time buyer if…

You are probably not a first-time buyer if you are purchasing a home with someone who owns, or has previously owned, a residential property.  However, the fact that your partner has previously owned property will not prevent you from being able to use your Lifetime ISA savings (with the government’s 25% bonus) towards the purchase of your first home.  

You should keep in mind that there’s no universal definition of “first-time buyer” and so all hope is not lost if you don’t meet the requirements for one lender; other lenders may still classify you as a first-time buyer so it’s worth shopping around.  

Now we know what a first-time buyer is, let’s answer your top five questions on inheriting a property…

Q1. Can I ever be a first-time buyer if I inherit a property?

You can still be classed as a first-time buyer if the property you inherit is a commercial property, such as shops, industrial buildings and restaurants, with no residential components.

However, if the property you inherit has any residential element (such as a pub with living quarters attached), then you will no longer be classed as a first-time buyer.  

The percentage you inherit, the fact that you have never lived in the property and the speed you sell the inherited property after inheritance do not make a difference; you are still a homeowner and therefore not a first-time buyer.

If you need help selling an inherited property, check out my Ultimate Guide To Selling An Inherited Property or give me a call now on 0330 223 5568.

Q2. Can you use your Lifetime ISA to purchase a home if you have inherited a property?

What is a Lifetime ISA (LISA)?

The Lifetime ISA (aka LISA) is a type of Individual Savings Account created to help people save for their first home or for retirement. You can pay up to £4,000 into your Lifetime ISA every tax year. The government will add a bonus worth 25% of what you pay in, up to a maximum of £1,000 per year.

In order to count as a first-time buyer for LISAs, you must not have or have had an ongoing beneficial interest in a residential property, including a beneficial interest via a trust (such as those created by a divorce or a will).

Beneficial interest: You have the right to occupy the property and/or receive a financial benefit, such as a share of the rent, even if you are not a legal owner.

If you have inherited a property after opening a Lifetime ISA, you will still be able to use your savings in your LISA to purchase your first home but only after paying the withdrawal charge.  The withdrawal charge is 25% of the total savings and removes the government bonus payments.

The good news if you are purchasing a property with someone else is that your inheritance will not affect the other purchaser’s ability to use their Lifetime ISA savings, including the 25% government bonus, towards the purchase of your first home.

Q3. Am I still a first-time buyer if I inherit a property abroad?

You are not a first-time buyer if you inherit a residential property abroad.  It does not matter where in the world the property is based – you now own a major interest in a dwelling and therefore no longer qualify as a first-time buyer.

Q4. Can I claim SDLT relief if I have inherited a property and want to use the sale proceeds to purchase my first home?

What is Stamp Duty Land Tax relief?

SDLT relief was introduced for first-time buyers on purchases of residential property for £500,000 or less, provided the buyer intends to live in the property as their only or main residence.

FTBs purchasing their first home for £300,000 or less pay no SDLT. Where the purchase price is over £300,000 but does not exceed £500,000, they pay 5% on the amount above £300,000.

HMRC have confirmed in their guidance that “if the inheritance resulted in you acquiring a freehold or leasehold interest then you cannot claim first-time buyers’ relief”.

It is irrelevant that you would be using the sale proceeds to purchase your first home.  Although you have technically never bought a home, when you inherit a property, you become a homeowner and therefore no longer qualify as a first-time buyer for SDLT relief purposes.

The only time you would be able to claim SDLT relief when you have inherited a property is if the property was purely commercial; you could then use the sale proceeds to purchase your first home and claim SDLT relief as you do not have, and have never had, an interest in a dwelling.

Q5. Am I a first-time buyer if I inherit a property held in a trust?

You will not be a first-time buyer if title to the residential property transfers to the trust of which you are a beneficiary.  

Lifetime ISAs and trusts

HM Treasury have confirmed there are some exceptions where you may still be classed as a first-time buyer for Lifetime ISA purposes, which we have set out below:

1. If the trust was only set up to sell the property following a death, provided the title does not transfer to your name or to a trust of which you are a beneficiary
2. If you are only acting as a trustee and will not be entitled as a beneficiary of the trust in the future

*Both exceptions above assume you do not have any other interests in residential property.

It is also worth noting that you would still be classed as a first-time buyer for LISA purposes if you are named as a beneficiary of residential property in the will of a person who is still living.

SDLT relief and trusts

You would still be classed as a first-time buyer for SDLT relief purposes if you have previously bought a dwelling as a trustee, provided that you were not also a beneficiary of the trust.

If you are named as a beneficiary in the trust and title to the property is transferred or “assented” to you at any point, then you will be a homeowner and first-time buyer relief will not be available.

Assented: Transfer of ownership of a property from someone who has passed away to a new owner.

Top Tips

Watch Out for Hidden Tax…

On top of losing your first-time buyer status and the associated benefits that come with this status, you might also have to pay the additional stamp duty rate if you decide to keep the inherited property and then purchase your first home.  For more details on SDLT and inherited property, please read our in-depth article here.  

Something to consider…

If you are worried about your children or grandchildren losing their first-time buyer status if you intend on leaving them your property in your will, it might be worth considering leaving them a cash legacy or a share in the estate equivalent to their share in the value of the property.  

This means they will retain their first-time buyer status, as the property will not transfer into their name, and will get a lump sum to help them with the purchase of their first home.  

We would recommend that you speak to a probate solicitor for specific advice on the best way to structure your will with FTB status in mind.

If you’ve recently inherited a home and would like advice on the best way to sell it, we’d be happy to help. Contact us now on 0330 223 5568.

Alternatively, if you have any additional questions that we have not answered, please do get in touch.