Stamp duty changes for first time buyers: What you need to know?

Value My Home

The chancellor has announced that first time buyers will pay NO stamp duty on a home worth less than £300,000 with immediate effect, following measures to boost home building.

The chancellor said the policy, which has abolished the stamp duty on homes under £300,000 for first time buyers, will help up to a million people to get on the housing ladder.

There has been criticism it will raise house prices  but Phillip Hammond has defended the decision and said that by abolishing stamp duty for first-time buyers, we have now created an incentive to save a deposit.

A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.

First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT (Stamp duty land tax) at the normal rates.

The relief must be claimed in an SDLT return.

 

So what is stamp duty?

Stamp duty is a tax you have to pay in England, Northern Ireland and Wales when you buy a residential property, or a piece of land over a certain value.

The rate at which you’ll pay the tax varies based on the property price.

 

So what’s the new system for first-time buyers?

In England, Wales and Northern Ireland, the new stamp duty rates for first-time buyers buying properties costing up to £500,000 are as follows:

  • Up to £300,000 purchase price: 0% stamp duty
  • £300,000.01 to £500,000: 5% (on that portion of the purchase price only)

If you buy a first home costing more than £500,000, you won’t benefit from any change and will be buying under the standard system, which applies to non first time buyers too.

Vendor OnlineSo who counts as a first time buyer?

Anyone who hasn’t owned a property before anywhere in the world, whether bought or inherited.

You also won’t qualify for the discounted rates if you’re buying to let – even if it’s your first purchase. The property you’re buying needs to be used as your main residence.

 

I’m a first-time buyer but I’m buying with someone who isn’t,

Do we get the lower rates?

If you’re a first-time buyer jointly purchasing a home with a non first-time buyer, sadly you WON’T qualify for the first-time buyer rates. You both need to be first-time buyers.

I’ve exchanged but not yet completed. When does this come into effect?

It’s actually already in effect, as of 00.01am on 22 November 2017.

The requirement to pay stamp duty is triggered when you complete the purchase of the property. So if you’ve exchanged prior to 22 November but not completed, you’ll be charged under the new first-time buyer stamp duty system.

How much will first-time buyers save?

The maximum stamp duty saving that you can make under the new system, compared with standard rates, is £5,000. You’ll make this saving if you’re buying a property costing between £300,000 and £500,000.

However, the Office for Budget Responsibility has warned that this measure is actually likely to increase property prices, which could ultimately wipe out any gain from lower stamp duty payments.

If you’re a first-time buyer purchasing a property for more than £500,000, you’ll pay under the standard stamp duty system which also applies to those who AREN’T first-time buyers.

If you’re buying a higher value property you’ll pay a different rate for different proportions of the property’s price and they’ll all add together to give the final stamp duty you pay. This works as follows:

  • Up to £125,000 purchase price: 0% stamp duty
  • £125,000.01 to £250,000: 2% (on that portion of the purchase price)
  • £250,000.01 to £925,000: 5% (on that portion of the purchase price)
  • £925,000.01 to £1,500,000: 10% (on that portion of the purchase price)
  • £1,500,000.01+: 12% (on that portion of the purchase price)

For example, if you’re buying a property costing £670,000, you’ll pay £23,500 in stamp duty, made up of 2% of the portion of the property costing £125,000 to £250,000 (ie, £2,500) and 5% of the portion from £250,000.01 to £670,000 (ie, £21,000).

I live in Scotland. Are there any changes for me?

No – the Scottish Government has said there’ll be no changes to the Land and Buildings Transaction Tax system (the name given to stamp duty in Scotland).

Scotland Finance Secretary Derek Mackay said: “Analysis from the Office for Budget Responsibility, the UK Government’s own independent forecaster, shows that the UK’s stamp duty change will simply feed through to higher house prices and will benefit those who already own property, not the first-time buyers.”

Stamp duty in Scotland is paid according to the following bands (again, if you’re buying a higher-value property, you’ll pay a different rate for different proportions of the property’s price, and they’ll all add together to give the final amount you pay):

  • Up to £145,000 purchase price: 0% stamp duty
  • £145,000.01 to £250,000: 2% (on that portion of the purchase price)
  • £250,000.01 to £325,000: 5% (on that portion of the purchase price)
  • £325,000.01 to £750,000: 10% (on that portion of the purchase price)
  • £750,000.01+: 12% (on that portion of the purchase price)