First-time buyer's stamp duty break explained: how much can I save?

First-time buyer's stamp duty break explained: how much can I save?

First-time buyer's stamp duty break explained: how much can I save?

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First-time buyers can continue to benefit from paying a reduced level of stamp duty or even none at all once the current stamp duty holiday ends in 2021. Here's how it works.

First-time buyers will continue to benefit from the stamp duty tax break, even after the current stamp duty holiday ends for the wider housing market on 30 September.

First-time buyers qualify for a reduced rate of stamp duty, with some not having to pay the tax at all.

The move was introduced by the government in November 2017 in a bid to help more people get on to the property ladder.

So far, it has helped more than 500,000 people purchase their first home, collectively saving them £1.22bn.

What is stamp duty?

Stamp duty is the tax you pay to the Government when you purchase a residential property in England and Northern Ireland. Scotland and Wales have their own systems.

There is currently a stamp duty holiday in place, but this ends on 30 September and normal stamp duty rates will then apply.

Stamp duty is charged on a progressive basis, meaning you pay the tax at different rates on different portions of a property’s value.

What are the normal stamp duty rates?

No stamp duty is charged on the first £125,000 of the purchase price, with a rate of 2% charged on the portion between £125,001 and £250,000.

The rate then increases to 5% on the portion of the purchase price between £250,001 and £925,000, and 10% on the portion between £925,001 to £1.5m.

It is then charged at 12% on sums above £1.5m.

  • £0 - £125,000 = 0%
  • £125,001 - £250,000 = 2%
  • £250,001 - £925,000 = 5%
  • £925,000 - £1,500,000 = 10%
  • £1,500,000+ = 12%

So, for example, if you bought a property costing £250,000, you would pay 0% on the first £125,000 of your property and 2% on the remaining £125,000. So your total stamp duty 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 next £125,000 (£2,500) and 5% on the remaining £250,000 (£12,500). So your total stamp duty bill would be £2,500 plus £12,500, which equals £15,000.

Stamp duty must be paid within 14 days of the completion of your purchase.

However, there is currently a stamp duty holiday in place, which means that no one needs to pay stamp duty on the first £500,000 of a property until the end of June. Thereafter, a tapering off period is in place until the end of September, which means buyers don't need to pay stamp duty on the first £250,000 of a property.

What is the first-time buyer stamp duty exemption?

Under the first-time buyer stamp duty exemption, people purchasing their first home do not have to pay the tax on the first £300,000 of their property purchase, as long as the total price of their home does not exceed £500,000.

So, unlike regular buyers, who are liable for the tax on property purchases costing more than £125,000, stamp duty does not kick in for first-time buyers until £300,000.

What are the stamp duty rates for first-time buyers?

  • First-time buyers pay zero stamp duty on homes worth up to £300,000. 
  • They then pay 5% stamp duty on homes costing between £300,001 and £500,00 – but only on the slice of the purchase price above £300,000.
  • They pay stamp duty like any other buyer on homes that cost more than £500,000, which means the tax would kick in at £125,000 (as shown above).

So for example, a first-time buyer purchasing a property costing £250,000 would not pay any stamp duty at all.

A first-time buyer purchasing a home for £350,000 would only pay the 5% stamp duty on the £50,000 over the £300,000 threshold. So they would pay 5% of £50,000, which equals £2,500.

This compares with the £7,500 stamp duty that next-time buyers will have to pay once the stamp duty holiday ends.

Use HMRC’s stamp duty calculator to work out exactly how much you will have to pay.

What impact does the stamp duty holiday have on first-time buyers?

The stamp duty holiday on the first £500,000 of property is good news for first-time buyers, as it means that they will not be liable for the tax on homes costing up to £500,000, rather than the £300,000 limit which exists under the first-time buyer stamp duty exemption.

But the full stamp duty holiday comes to an end on 30 June, after which the tax-free threshold will be tapered to £250,000 between 1 July and 30 September to avoid a ‘cliff edge’ effect.

First-time buyers will not benefit from the tapered stamp duty holiday, as they are already exempt from paying the tax on the first £300,000 of a purchase.

Who qualifies as a first-time buyer?

The definition of a first-time buyer for the stamp duty exemption is quite strict.

In order to qualify, you can never previously have owned a property or a share in one, either in the UK or abroad. You will also need to live in the home you are buying.

If you are buying with someone else, they will also have to meet the above criteria, otherwise normal stamp duty rates will apply to the purchase.

Is there a similar scheme in Scotland and Wales?

Stamp duty was replaced with the Land and Buildings Transaction Tax in Scotland.

First-time buyers do not have to pay the tax on the first £175,000 of their purchase.

Wales has a Land Transaction Tax with a starting threshold of £250,000 for everyone.

What if I am buying a shared ownership property?

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.

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

If you already own part of a shared ownership property, you'll typically no longer be classified as a first-time buyer. This 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 using the Help to Buy scheme?

First-time buyers purchasing a property 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 has at least 21 years or more to run.