How to qualify for first-time buyer stamp duty relief
Saving for a first home can be challenging but what if stamp duty could be scrubbed off your list of costs? Well, qualify for first-time buyer stamp duty relief and this tax on buying a new home can be avoided altogether, or at least reduced.
The costs of buying a home can quickly add up when you’re trying to get onto the property ladder, but with first-time buyer stamp duty relief there’s scope for a big saving to be made. That’s because if you pay less than £300,000 for your first home, and you meet the necessary eligibility requirements, stamp duty won’t need to be paid.
Qualifying for first-time buyer stamp duty relief could allow you to redirect some of your savings towards a bigger deposit. And this may mean you’re in a position to apply for a mortgage much sooner than you thought, or can turn your attention away from 95% LTV mortgages to higher deposit mortgage deals offering better rates.
So when do first-time buyers pay stamp duty and, perhaps most importantly, what makes you eligible for first-time buyer stamp duty relief? Read on to find out.
What is stamp duty?
Stamp duty - or Stamp Duty Land Tax (SDLT) to give it its full name - is a tax that is payable if you purchase a property (or land) in England or Northern Ireland above a specific price. Similar taxes also apply in Scotland and Wales, under different names.
If the price of buying your new home is below the stamp duty threshold of £125,000, you avoid paying stamp duty. But if the purchase price is above the threshold, stamp duty rate bands determine how much you pay - the more expensive the property, the higher your stamp duty will be.
Importantly, stamp duty is calculated according to how much of the purchase price sits within each band, rather than the rate attached to the highest band you fall into being applied to the whole purchase price.
Stamp duty rates (with effect from 1 October 2021)
|Purchase price||Stamp duty rate|
|Up to £125,000 (the threshold)||0%|
|Section of price between £125,001-£250,00||2%|
|Section of price between £250,001-£925,000||5%|
|Section of price between £925,001-£1.5m||10%|
|Section of price above £1.5m||12%|
IMPORTANT: With effect from 8 July 2020, a stamp duty holiday was introduced to help support the housing market against the challenges presented by the Covid-19 pandemic. During the holiday, the 0% threshold was set at £500,000 for the period to 30 June 2021, and £250,000 from 1 July 2021 to 30 September 2021. From 1 October 2021, the holiday ends and the £125,000 threshold resumes.
How to pay stamp duty
You have 14 days from the date of completion of your purchase to pay stamp duty to HMRC. Usually, your solicitor will complete the necessary paperwork, pay it for you, and add it to your bill. If you need to arrange payment yourself, you can file and pay on the HMRC website.
What is first-time buyer stamp duty relief?
To help support those struggling to meet the upfront costs of buying a first home, the government introduced first-time buyer stamp duty relief in November 2017.
As a result, if you meet the definition of a first-time buyer, a higher stamp duty threshold applies, so that if you buy a property worth £300,000 or less, you will pay no stamp duty at all.
It is worth noting that even if you have nothing to pay, a stamp duty return must still be completed to satisfy HMRC requirements. Again, your solicitor will often do this for you.
Who is considered a first-time homebuyer?
To qualify as a first-time buyer, you must be buying a property which you intend to be your main residence. It must also be the first property that you have owned either in the UK or anywhere else in the world. If you have previously inherited or been gifted a residential property, or intend to use your new property as a buy-to-let investment, you won’t be eligible for first-time buyer stamp duty relief.
When you’re buying with someone else, both of you must meet the definition of a first-time buyer to qualify for the relief. So if either of you previously owned a house jointly with a partner or spouse, relief is not available - this applies regardless of whether you were a joint tenant or a tenant in common.
Stamp duty rates for first-time homebuyers
For first-time buyers who buy a property worth up to £300,000, there is no stamp duty to be paid. Pay between £300,000 and £500,000, and stamp duty is applied at a rate of 5% on the proportion of the purchase price above £300,000. For example, if you are a first-time buyer purchasing a property at a price of £350,000, you would pay stamp duty of £2,500 (5% of £50,000).
However, where a first home is purchased at a price above £500,000, first-time buyer stamp duty relief is not available and normal stamp duty rates apply.
Stamp duty rates for first-time buyers
|Purchase price||Stamp duty rate|
|Up to £300,000 (first-time buyer threshold)||0%|
|Section of price between £300,000-£500,000||5%|
|£500,000 and above||No relief, must pay at normal rates|
How were first-time home buyers affected by the recent stamp duty holiday?
During the stamp duty holiday, the higher nil-rate threshold of £500,000 that was introduced applied to first-time buyers too. That meant first-time buyers could buy a property worth up to £500,000 and pay no stamp duty at all.
When the wider stamp duty rate dropped to £250,000 from 1 July 2021, the usual first-time buyer stamp duty relief threshold of £300,000 came back into force. It will also remain effective when the stamp duty holiday ends on 1 October 2021 and the standard £125,000 threshold is reintroduced for those who have owned properties before.
What types of mortgage qualify for first-time buyer stamp duty relief?
Knowing how different types of mortgage may affect your eligibility for stamp duty relief is important if you want to qualify.
- Joint mortgage - if you’re buying with someone else using a joint mortgage, you can be eligible for first-time buyer stamp duty relief, but only if both of you meet the definition of being a first-time buyer.
- Guarantor mortgage - it is possible to claim first-time buyer stamp duty relief with a guarantor mortgage, provided your guarantor isn’t named on the title deeds of a property.
- Shared ownership - regardless of whether you choose to pay stamp duty on the full value or only the share you are buying initially, stamp duty relief is available with shared ownership as long as the total property value is less than £500,000. While relief cannot be claimed if you subsequently buy more shares in the property (known as staircasing), stamp duty only becomes payable if your stake rises above 80%.
- Gifted deposit mortgage - assuming you are receiving a true gifted deposit, and your giftee won’t appear on the title deeds, you’ll be eligible to claim stamp duty relief.
- Help to Buy - bona fide first-time buyers using a Help to Buy mortgage can make use of stamp duty relief too.
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Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more