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Buying August 29, 2024

A (Definitive) Guide: Stamp Duty For First Time Buyers

What is stamp duty?

Stamp duty for first time buyers can be a little confusing at first. Also known as Stamp Duty Land Tax, it is the tax that is owed on a property when purchasing a property over the stamp duty threshold (£125,000). The exception to this rule is first-time buyers do not have to pay stamp duty on the first £300,000 of the property.

Who counts as a first time buyer?

If you’re buying with a partner, relative or friend, all the people buying need to be first-timer buyers to register for the discount. This means you will have never owned a freehold or leasehold interest in a dwelling before, and you must be purchasing the property to be your only or main residence.

This includes property all over the world, so if you have a flat in France, you won’t be able to be a first-time buyer in the UK.

Fun Fact: This includes property all over the world, so if you have a flat in France, you won’t be able to be a first-time buyer in the UK.

What does freehold property mean?

Freehold property is any property in which the owner has complete ownership of the property and the land in which it is built. Freeholds are typically houses. You are in complete control of how it is used and what happens to it.

What does it mean to buy a leasehold property?

Leasehold means that you own the property, but do not own the land in which it is built. Leaseholds are typically flats. You will have the right to occupy the property for as long as the lease is valid. Leases will often be 90 years.

Does it apply to both leasehold and freehold?

The changes apply to people buying both freehold and leasehold properties, as long as the lease premium is under £40,000 and tax isn’t due on rent.

It all means that it should make it easier for first-time buyers to get on the property ladder and make the housing market move faster at all levels.

History: Stamp Duty Explained

In the Budget 2018, Chancellor Phillip Hammond announced that first-time buyers in shared ownership homes will pay no Stamp Duty Land Tax (Stamp Duty) on the first £300,000 of any property costing up to £500,000. The was made in retrospect back to the previous Budget in November 2017. Before the announcement, first-time buyers were required to pay Stamp Duty on shared ownership purchases, despite the fact that first-time buyers were deemed exempt of paying Stamp Duty on a property that cost below £300,000.

Why has it been changed?

This is designed to make it easier for more people to get onto the housing ladder. It will mean that first-time buyers will have to save slightly less before they buy a home.

It is hoped that it will make the property market move faster at all levels. As there should be more first-time buyers, it will encourage people to take a second step on the ladder, putting more homes on the market. This should help people moving both up and down the housing ladder.

How much is stamp duty in the UK first time buyer?

Essentially, now whether in or out of shared ownership schemes, people buying their first property will not pay Stamp Duty on a home that in which the purchase price is less than £300,000. For first homes under £500,000, you won’t have to pay Stamp Duty on the first £300,000, which will reduce the amount you need to save.

Top Tip: While the changes apply to first-time buyers in both England and Northern Ireland, they do not apply to buyers in either Scotland or Wales.

What does this mean if your parents are going to jointly buy with you?

If your parent that has previously bought a house is going to jointly buy a property with you, the sale will not be eligible for a discount. However, you could apply for a “joint borrower sole proprietor” mortgage with a parent.

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How is stamp duty calculated?

To know how stamp duty is calculated, you will need to know the purchase price of a property. If you are buying your first property in England or Northern Ireland, you will pay no Stamp Duty on first £300,000 and 5% on the proportional amount between £300,000 and the remaining balance up to £500,000.

For example, if you wanted to calculate stamp duty on a home costs £500,000, as a first-time buyer you would pay 5% of the remaining balance of £200,000, after the exemption on the first £300,000 has come into play. The equation would look like this:

£500,000 (Purchase price) - £300,000 (First-time buyer exception) = £200,000.

£200,000 x 5% = £10,000 (Stamp Duty payable)

As a first-time buyer, if you purchase a property for more than £500,000, you won't benefit from any change and will be buying under the standard system. This also applies when purchasing a shared ownership property. If the property is worth more than £500,000, the exemption will not count even though you'll own less than the full £500,000.

Stamp Duty Calculator

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When do you have to pay stamp duty?

Stamp duty or a Stamp Duty Land Tax return is due within 14 days of the transaction date. You must file and pay and stamp duty owed within the 14 days. If you don't submit and pay any stamp duty owed, the HMRC may impose penalties and interest.

Further reading: Stamp Duty Land Tax online and paper returns

When is Stamp Duty not payable?

There are certain scenarios in which stamp duty is not payable or can be reduced. These include:

● If the purchase price of a property is less than £125,000 stamp duty will not be payable.

● If the asking price is slightly over a rate band, it may be worth asking the estate agent if the price can be reduced.

● A transfer of property as a result of a divorce or separation will result in no stamp duty being owed.

● A transfer of deeds, as a gift or in a will, will result in stamp duty not being owed.

Top Tip: If you exchange property with another person, stamp duty will be owed on the market value.

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