Stamp duty is a major cost to budget for when buying a home. But due to changes to this tax scheme over the years, there’s often confusion about how stamp duty is worked out and the amount you have to pay. This is particularly the case for first-time buyers, who often wonder whether they have to pay stamp duty.
So, what exactly are your stamp duty obligations as a first-time buyer? Let’s find out.
What is stamp duty?
You pay Stamp Duty if you buy a property or land over a certain price in England and Northern Ireland.
Up until 8 July 2020, most homebuyers in England and Northern Ireland had to pay stamp duty on properties priced above £125,000. This threshold was temporarily increased to £500,000 to inject life into the housing market during the coronavirus crisis.
This stamp duty holiday has been a lifesaver for both first-time buyers and previous property owners. Many have been able to shave off significant costs on their home purchases.
However, the stamp duty holiday is set to expire on 31 March 2021. As things stand, from 1 April 2021, the tax threshold will revert back to £125,000 for residential properties.
Do first-time buyers pay stamp duty?
Yes, first time buyers do pay stamp duty. The good news is that those buying properties below £500,000 are eligible for discounts that can mean less or no tax.
From 1 April 2021, after the current stamp duty holiday ends, as a first-time buyer, you won’t pay stamp duty if you buy a property priced below £300,000.
If you buy a property worth between £300,001 and £500,000, then you’ll pay stamp duty at a rate of 5% on the amount of the purchase price in excess of £300,000.
So, for example, if you buy a property worth £350,000, you will pay a stamp duty of £2,500. This is calculated as follows:
- Nothing on the first £300,000
- 5% on the next £50,000 = £2,500
If the property is bought for more than £500,000, standard stamp duty rates will apply.
On the bright side, the cost of most people’s first home tends to be below £300,000. So as a first-time buyer, there’s a likelihood that you won’t have to pay stamp duty anyway.
Do you qualify as a first-time buyer?
The government defines a first-time buyer as an individual who has never owned an interest in a residential property in the UK or anywhere else in the world and who intends to occupy the property as their main residence.
It’s also worth noting that if you’re buying a house as part of a couple, you’ll only benefit from the first-time buyer rules if both you and your partner legally qualify as first-time buyers.
What else is available to first-time buyers?
In addition to the stamp duty relief and discounts, a few other benefits and incentives are available to help first-time buyers. These two, in particular, are worth checking out:
Help to Buy: Equity Loan Scheme: This is for those who wish to buy a new-build home. Here, you’ll need a lower deposit than usual. The government will provide a loan that covers part of the property cost. However, you’ll still need a mortgage to cover the rest of the costs.
Help to Buy Shared Ownership: This is a part-buy, part-rent scheme that allows aspiring homeowners to buy a share of a property (between 25% and 75%) and pay rent on the remaining share. You can then increase your share as you can afford to.
