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What does the stamp duty holiday mean for first-time buyers?

What does the stamp duty holiday mean for first-time buyers?
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Good news for first-time property buyers! If you buy a residential property before 30 June 2021 for £500,000 or less, then you don’t have to pay stamp duty. It could save you up to £10,000. Let’s take a closer look at the benefits the stamp duty holiday offers.

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Before we continue, note the following:

  • Tax treatment depends on an individual’s specific circumstances and may be subject to change in the future.
  • Standard threshold stamp duty rates apply from 1 October 2021.
  • First-time buyers’ relief does not apply to amounts above £500,000.

What is a first-time buyer?

Let’s first make it clear what a first-time buyer is:

  1. An individual who has never owned a property before – owning a property in a foreign country or property ownership through inheritance and gifting disqualifies you.
  2. An individual buying a property to be their only and main residence – buying a property to rent does not count.
  3. Two or more individuals purchasing a property jointly who both fall under requirements 1 and 2 above.

What is stamp duty?

Stamp duty is a tax paid when you buy a property above a certain value. It’s a cost that’s been known to hinder first-time buyers from owning property.

What is the stamp duty threshold?

The stamp duty tax threshold is a price set by the government to mark where stamp duty tax applies. It is used when calculating how much stamp duty you are required to pay. You can find the stamp duty tax thresholds on the gov.uk website.

What is the stamp duty holiday?

Before the coronavirus pandemic, the stamp duty threshold was £125,000 for regular buyers. First-time buyers could access first-time buyers’ relief, meaning their threshold was £300,000. Then came the pandemic that caught most people off-guard and drove the economy downwards.

To improve the situation, the government temporarily increased this minimum stamp duty threshold to £500,000, making it more affordable for people to move. The period runs until 30 June 2021 and is referred to as the stamp duty holiday.

Note that for the period 1 July 2021 to 30 September 2021, the threshold will reduce to £250,000, and then go back to the standard £125,000 from 1 October 2021.

How much can first-time buyers save during the stamp duty holiday?

As first-time buyers qualify for first-time buyers’ relief, they pay no stamp duty on the first £300,000 of a property’s value.

But during the stamp duty holiday, as a first-time buyer, you won’t have to pay stamp duty on the first £500,000 of a property’s value. This means you could save up to £10,000. How so? Let’s crunch the numbers:

We need to look at how much stamp duty you would have paid if you had bought the same property before the stamp duty holiday:

  • The first £300,000 = £0 stamp duty
  • The next £200,000 (5% stamp duty) = £10,000
  • Total stamp duty saved = £10,000

Can you still save money after 30 June 2021?

From 1 July 2021, the stamp duty holiday threshold will drop to £250,000. However, first-time buyers will still benefit from first-time buyers’ relief. 

No stamp duty tax will be charged for the first £300,000 of a property’s value, but the remaining balance will be charged stamp duty at 5%. 

Let’s crunch the numbers for a property worth £500,000:

  • The first £300,000 = £0 stamp duty
  • The remaining £200,000 (5% stamp duty) = £10,000
  • Total stamp duty to be paid = £10,000
  • So you’ll pay £10,000 in stamp duty, but this will be less than the £12,500 paid by those who are not first-time buyers. And remember, if you buy a property worth £300,000 or less, you’ll still pay no stamp duty.

Use the stamp duty calculator on the gov.uk website to determine how much you could save during the stamp duty holiday.

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