Inherit a home and lose first-time buyer benefits

Would-be firsttime buyers could face an agonising setback in their housing aspirations if they inherit an unwanted stake in a property. Those who are left a property, or part of a property, are immediately disbarred from a range of benefits intended to help young people on to the housing ladder. The cost of losing these benefits can exceed £10,000 for house-hunters in expensive areas.

This occurs even if would-be buyers inherit a stake in a property unexpectedly or in a location far from where they want to live. In some cases the value of a share in the inherited property could be dwarfed by the amount they stand to lose in Government support. These unfortunate circumstances could affect Geordie Clarke, 38, who works in financial services.

Mr Clarke’s father, who lives in Canada and has failing health, plans to leave his property to his two children.

However, this will prevent Mr Clarke, who lives in London and is a naturalised British citizen, from using Government schemes such as the Help to Buy Isa and receiving a first-time buyer exemption from stamp duty.

Mr Clarke’s father has considered making him a “joint tenant” on the Canadian property now to ease the probate arrangements after his death, but this would also disqualify his son from the support schemes.

“My father is 70 and is in ill health,” Mr Clarke said. “He’s started to think more seriously about what he’s doing as an inheritance strategy. However, if I inherit a property it instantly negates me being a first-time buyer. Even if he puts me as a joint tenant, that will instantly preclude me from having any first-time buyer benefits.

“There are thousands of pounds at stake. That’s significant and I wouldn’t want to lose it.”

HMRC rules define a first-time buyer as an individual who has “never owned an interest in a residential property in the United Kingdom or anywhere else in the world”. This would make Mr Clarke ineligible for a reduction in his stamp duty bill if he inherited a share in his father’s property.

Help to Buy Isa rules also state that a first-time buyer must not own a property anywhere in the world. In both instances there is no grace period for people who inherit a property unexpectedly, even if there is no reasonable way the recipient could live there.

The costs of falling through the cracks can be enormous. Buying a £300,000 property would result in a £5,000 stamp duty bill without the first-time buyer exemption. This would apply even if the buyer sold the inherited property before buying his or her own home.

Someone with a Help to Buy Isa would earn a maximum Government bonus of £1,450 once they had saved in the account for two years; this would also be lost if a property were inherited.

Those with a Lifetime Isa, which has the same restrictions, would have the option of paying a 6.25pc penalty to withdraw their cash or keeping the money locked away until they reached retirement age.

Rachel Springall of Moneyfacts, a data firm, said: “It’s understandable for prospective first-time buyers to be wary of inheriting property if they are trying to grow a deposit using either a Help to Buy Isa or Lifetime Isa.”

She said there was one rule that could potentially help those who had a Help to Buy Isa. The beneficiary of a trust created for the purpose of selling a property after death or divorce would be considered a first-time buyer, so long as the title deeds of the property were not in the potential inheritor’s name.

However, this is a complex solution and no such exemption applies to stamp duty liability.

Mr Clarke said he believed others could be caught out by the rules. “People are now closer to 40 when they buy property and their parents can be elderly by then,” he said. “They might be inheriting properties before they have bought their own house. Then all of a sudden you lose your first-time buyer benefits. But I can’t tell my dad not to end up in hospital for a year.”

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