First-Time Buyer’s Stamp Duty Break Explained: How Much Can I Save?

First-time buyers pay a reduced level of stamp duty, with some not having to pay the tax at all which could end up saving them thousands.

For this week’s Top Tip Tuesday, we will be sharing everything you need to know about Stamp Duty as a first-time buyer, if you qualify and how it’s calculated.

What is stamp duty?

Stamp duty is a tax that you pay to the government on any home or land bought in England or Northern Ireland. It is always paid by the buyer, not the seller.

Stamp duty works out as a percentage of the property you are buying. The more expensive the property, the higher the percentage you’ll pay.

But in good news for buyers, you only pay the given percentage on the part of the property price that sits within each band.

What are the normal stamp duty rates?

The normal stamp duty rates currently look like this:

Property priceStamp duty percentage to pay
£0 – £125,0000%
£125,000 – £250,0002%
£250,000 – £925,0005%
£925,000 – £1.5m10%
£1.5m+  12%

So, if you purchased a property costing £250,000, you would pay:

0% on the first £125,000

2% on the remaining £125,000 = £2,500

So, your bill would be £2,500.

If you bought a property costing £500,000, you would pay:

0% on the first £125,000

2% on the on portion between £125,000 and £250,000 = £2,500

5% on the portion between £250,000 and £500,000 = £12,500

This means your bill would be £15,000.

Do first time buyers pay stamp duty?

No and yes. It all depends on the price of the property you are planning to purchase. First-time buyers don’t have to pay the tax on the first £300,000 of the home they are buying.

So, if the home costs less than £300,000, you won’t have to pay it at all.

However, if the home you want to buy is less than £500,000, you will not have to pay any stamp duty on the first £300,000, but you will have to pay 5% stamp duty on the bit between £300,000 and £500,000.

Here’s how that looks:

What are the first-time buyer stamp duty rates?

Property pricePercentage of stamp duty paid
£0 – £300,0000%
£300,000 – £500,0005%
£500,000+Normal stamp duty rates apply

So, unlike regular buyers, who start paying the tax on any property worth more than £125,000, first-time buyers get extra leeway, with the tax not kicking in until the property they want to buy hits the £300,000 mark.

But here’s the rub: if first-time buyers want to buy a home that costs more than £500,000, all stamp duty exemption privileges are removed, and they have to pay the regular rates just like everybody else.

Who is classed as a first-time buyer for stamp duty?

The definition of a first-time buyer for the stamp duty exemption is quite strict. To qualify for this exemption, you can never previously have owned a property or a share in one, either in the UK or abroad.

Even if you have inherited a property, never lived in it, and sold it immediately, you would still no longer count as a first-time buyer.

You will also need to live in the home you are planning to buy. If you are buying with someone else, they too will have to meet the above criteria, otherwise the regular stamp duty rates will apply to the purchase.

When do you have to pay stamp duty?

Stamp duty must be paid within 14 days of the date you complete on your property purchase. That is when the ownership of it legally transfers to you.

Usually, this part of the process is handled by your solicitor or conveyancer. They will send the stamp duty land tax return to HM Revenue & Customs on the day of completion and transfer the money on your behalf.

Here’s more information on how to file stamp duty land tax returns to HMRC.

Can I pay stamp duty in instalments?

Only if you are buying a shared ownership property. Otherwise, sadly not. The bill must be paid in full within 14 days of completion.

How does stamp duty work if I’m buying a shared ownership property?

When you buy a share in a property through an approved shared ownership scheme, there are two ways to pay to stamp duty:

  • Make a one-off payment based on the total market value of the property.
  • Pay any stamp duty due in stages.

With the second option, you work out the stamp duty each time you buy a share of the property. The payments count as ‘linked transactions’ for stamp duty.

If you choose to pay your stamp duty in stages, you will pay anything that is due on the first sale amount. But then you do not make any further payments until you own more than an 80% share of the property.

You can choose which options are best for you, depending on your circumstances.

Whether you opt to pay the stamp duty upfront or in stages, first-time buyers of Shared Ownership homes worth under £500,000 will be entitled to the full stamp duty relief.

This has been applied retrospectively since October 2018, so some existing buyers may even qualify for a refund. Find out more about paying stamp duty for Shared Ownership properties at the government’s website.

What if I am buying a further share of my first property?

If you already own part of a shared ownership property, you will typically no longer be classified as a first-time buyer.

That means any further shares you want to buy will be subject to standard stamp duty rates. There are exceptions, which you can read more about in stamp duty expert John Shallcross’s article.

What if I’m buying through the Help to Buy scheme?

First-time buyers purchasing a home through the government’s Help to Buy scheme are also eligible for the tax break.

Does the stamp duty break apply to leasehold properties?

Yes. The waiver applies to both freehold and leasehold homes, so long as the lease still has at least 21 years or more to run.

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