The stamp duty land tax (SDLT) relates to both freehold and leasehold properties over £125,000. It applies whether you’re buying with a mortgage or not. But – things are different for those who haven’t owned a home before! Confused by the conflicting rules? Unsure what applies to you? We can help you get your head around it. Here’s a closer look at first-time buyer stamp duty.
Do first-time buyers pay stamp duty?
Answer: yes and no.
While it helps to get your head around the tax, those buying a home for the first time receive stamp duty relief.
Stamp duty first home buyer
In England and Northern Ireland, you pay nothing on the first £300,000. After that, for homes costing up to £500,000 (but not exceeding it) you pay a 5% tax.
For homes worth more than £500,000, the relief does not apply.
Therefore, first homeowners are not exempt from stamp duty completely. Rather, adjustments have been made to help make buying a property easier. It’s one example of help for first-time buyers implemented by the government.
Stamp duty for first-time buyers buying through the shared ownership scheme is a little different.
As of 22 November 2017, homes purchased through this government property scheme are eligible for stamp duty relief.
A property costing up to £500,000 qualifies.
Stamp duty when buying a house explained
Trying to understand the tax and exactly how much you’ll be paying can be tricky. It helps to break things down.
How does stamp duty work?
Home buyers pay nothing on the first £125,000. After that, there are several bands to how much stamp duty you pay:
|Property price||Stamp duty rate (% of property price)|
|£125,001 – £250,000||2%|
|£250,001 – £925,000||5%|
|£925,000 – £1,500,000||10%|
Of course, if this is your first time buying a home, the rules are different, as you don’t pay anything up to £300,000.
Stamp duty calculator
Even when you have the bandings, it can still be tough to understand.
If you bought a property for £500,000, you would pay £15,000 in stamp duty. This is because you only pay 5% on the purchase price above £250,001. If you still can’t quite get your head around it, use a stamp duty calculator to see how much you’ll be paying.
Stamp duty in Scotland
In Scotland, stamp duty is known as the land and buildings transaction tax. It differs slightly, as you pay nothing on the property price over £145,000.
However, the basic principles are similar. It’s a tax that people buying a home must pay.
Stamp duty in Wales
In Wales, stamp duty is known as the Welsh Land Transaction Tax. As in Scotland, the basics are similar but the bandings are different.
You pay the tax on a home worth over £180,000.
First-time home buyer stamp duty – the rules
When it comes to stamp duty on a first home, there are some regulations in place.
So, who qualifies? When can’t you claim relief? It always helps to familiarise yourself with the definition of a first-time buyer.
If you inherited a property, even if you sold it immediately, you do not count as a first-time buyer. This applies to homes abroad also.
Relief does not apply to those who have owned a commercial property before. This includes:
• Offices / office buildings
• Medical centres
• Hotels / hostels
First-time buyer stamp duty relief will also not apply to those planning to buy a home with the intention of letting it out. To qualify, the property must be your intended main residence.
Buy-to-let and second home properties pay a higher stamp duty tax.
What happens to the property purchase if buying as a couple? In this case, both parties must be eligible first-time buyers.
Therefore, neither you or your party could have owned or inherited any type of property before.
The impact of the stamp duty exemption for first-time buyers
Unsurprisingly, the relief has made it easier for many buyers to get onto the property ladder.
Why was there a need for no stamp duty for first-time buyers?
There’s no arguing that it can be difficult for first-time buyers. Reasons include:
• Sky-high rent prices (particularly in London) that make saving for a deposit tough
• Lack of understanding about the property market
• Struggles of budgeting
• Difficulties getting a mortgage
With the average age of a first-time buyer sitting at 31 (33 in London), it’s little wonder action was taken.
The benefits of UK property stamp duty
The relief has allowed thousands of UK buyers to purchase a home with no stamp duty at all, or at least at a discount.
Those who bought their home before 22 November 2017 can also claim the tax back retrospectively.
How has the stamp duty holiday changed things?
The now-extended stamp duty holiday has created a house price boom, but some feel it has meant first-time buyers have lost their advantage.
Other help for first-time buyers
Stamp duty relief isn’t the only action that has been taken to help first-time buyers. Many property schemes exist to give new buyers a much needed boost.
• The Help to Buy Equity Loan
• Right to Buy
• New government-backed 95% mortgage scheme
• Shared Ownership
Each of these have their pros and cons, however many have found them an extremely useful way to get on the property ladder.
Can you pay stamp duty with a mortgage?
Some buyers choose to add the cost of the SDLT to their mortgage. This involves borrowing more money initially, so there’s a lot to consider.
Bear in mind that this can affect your loan-to-value (LTV) ratio! Before making any final decisions, you should weigh everything up and consider your circumstances.
Is this the right option for you? Speaking to a mortgage broker is the best way to find out. This allows you to get past the confusion and discuss your individual situation in detail. We can connect you with professionals to allow you to fully evaluate your options. Get your free mortgage quote below.
Last Updated: May 6th, 2021