Do first-time buyers pay stamp duty?

STAMP duty can be difficult to get your head round but it's important for any homebuyer to understand – even first-time buyers.

Stamp duty can add thousands of pounds to cost of your move, but if you're a first-time buyer, you might be exempt.

Adding to the confusion, the rates of stamp duty have changed over the course of the pandemic. But here's everything you need to know.

What is stamp duty?

Stamp duty land tax (SDLT) is a lump sum payment you have to make when purchasing property over a certain threshold.

Who has to pay it?

First time buyers do not have to pay the tax on homes costing less than £300,000. They only have to pay it on properties costing more than this.

However, first-timers buying a property worth between £300,000 and £500,000 do pay a discounted rate of stamp duty.

Prior to July 8, 2020, for other buyers purchasing a house in England and Northern Ireland, the threshold at which stamp duty was levied was properties costing over £125,000.

Have the rules have changed?

Yes. In July 2020, Chancellor Rishi Sunak increased the threshold at which you start paying stamp duty. He did this as part of the coronavirus “mini-Budget".

Under the so-called “stamp duty holiday", those buying a house or flat worth £500,000 or less have not had to pay the tax (as long as the property is their main residence).

The aim has been to give buyers a break, and also to breathe life back into the property market.

But rates started to go up again at the end of June and will change again at the end of September.

What has this meant for first-time buyers?

First time buyers have benefited from the stamp duty holiday in the same way as other home buyers.

How much can I save as a first time buyer?

First-time buyers don't pay any stamp duty on homes costing less than £300,000.

That's a saving of £5,000 compared to someone who is not a first-time buyer purchasing a £300,000 home.

But if the property is more expensive, the tax kicks in.

From October 1, first-time buyers pay the usual stamp duty rate of 5% on the amount between £300,001 and £925,000.

So, if you're buying a home worth £500,000 you would pay £10,000 in stamp duty.

Again, that's a serious saving though because for other buyers you start to pay 2% stamp duty at £125,001, which increases to 5% on any amount over £250,001.

A non-first-time-buyer purchasing a £500,000 home would pay stamp duty of £15,000.

If you want to check how much stamp duty you can expect to pay, there are plenty of online calculators that can help including one from the Money Advice Service.

What has the freeze on stamp duty meant for the property market?

The payment holiday has seen demand for homes soar in recent months. It has sparked a mini-boom and house prices have gone up.

Many buyers and sellers were trying to rush through transactions before the June 30 deadline to take advantage of the biggest savings. The final weekend of September is likely to see a similar panic before rates go back to normal.

Many buyers and sellers are worried about sales falling through due to delays in mortgage approvals and conveyancing – and there are concerns about not being able to complete on time.

What will happen after September 30?

From October 1, the normal rules on relief for first timers will apply once again, and there will be no stamp duty to pay on the first £300,000 of a main residential property.

For home movers (who are not first timers), the stamp duty holiday has been phased out between July and the end of September.

During this period, there was a £250,000 nil-rate band, meaning there is no stamp duty to pay on homes costing up to £250,000.

It was hoped this phased approach would offer a softer landing as the property market hopefully returns to some semblance of normality. But there is also speculation that house prices could rise at this time.

Temporary stamp duty rates (July 1 – September 30)

0% if a home is worth up to £250,000 (£300,000 for first time buyers)

5% if a home is worth between £250,001 and £925,000

10% if it’s worth between £925,0001 and £1.5 million

 12% on anything over £1.5 million

(Rates are different in Wales and Scotland)

Stamp duty rates from October 1

0% if a home is worth less than £125,000 (£300,000 for first time buyers)

2% if a home is worth between £125,001 and £250,000

5% if it’s worth between £250,001 and £925,000

10% if it’s worth between £925,0001 and £1.5 million

12% on anything over £1.5 million

(Stamp duty rates are different in Wales and Scotland)

Word of warning

As a first time buyer, you need to be aware that the £300,000 threshold will not apply if the home you are purchasing costs more than £500,000. If this is the case, you’ll pay the normal rate of stamp duty

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