The Essential Guide To Stamp Duty For First Time Buyers
In this guide
- What is Stamp Duty?
- How is stamp duty calculated?
- Do first time buyers pay stamp duty?
- How much is stamp duty for first time buyers?
- What happens if I’m a first time buyer buying with a homeowner?
- When do you pay stamp duty?
- Can I get first time buyer stamp duty relief if I’m using a guarantor mortgage?
- Can I claim first time buyer stamp duty relief if buying a shared ownership property?
- Can I use my Lifetime ISA bonus to pay my stamp duty?
You’ll need to set money aside for mortgage costs, valuations, and legal fees. And if that’s not bad enough, the tax man will often get involved too — sending you a bill for the privilege of purchasing a property. This is known as stamp duty.
What is Stamp Duty?
Stamp Duty Land Tax (SDLT or Stamp Duty for short) is a tax paid to the government when you buy property or land in England and Northern Ireland. (Wales and Scotland have similar property taxes that have slightly different names).
The Stamp Duty tax is broken down into bands and each band triggers a different rate of tax. The more expensive the property’s price tag, the bigger the tax bill. Stamp duty is a huge money spinner for the government. We’re talking more than £14bn in tax receipts for 2022. It makes our love affair with homeownership highly profitable for HMRC.
How is stamp duty calculated?
Stamp Duty Land Tax is calculated based on the property’s price and whether the buyer is buying their first home, moving house or purchasing a second property. A property investor would find themselves paying a higher rate than a home mover buying a property of the same price. Here’s how the brackets are tiered:
If stamp duty is payable on the property you’re buying, you won’t be taxed on the full property value. So, if a home mover was to buy a house that fell in the 5% bracket, they’d only be taxed on the value over £250,000.
Do first time buyers pay stamp duty?
Yes, first time buyers pay stamp duty but only on properties that cost above £425,000. If you are purchasing a property that’s £425,000 or less, as a first time buyer you won’t pay any stamp duty. This relief from the stamp duty tax was introduced in 2017 to help newbies onto the property ladder by reducing the cost of buying a house.
The government announced in September 2022 that this relief will be extended until 31st March 2025. After this point, the stamp duty threshold might go back down to levels similar to what they were before. This was £300,000 for first time buyers, and £125,000 for anyone else.
If you’ve been a homeowner before but you sold the property to rent or live with family, you won’t qualify as a first time buyer. To qualify, you must have never owned a property before in the UK or anywhere in the world.
How much is stamp duty for first time buyers?
Whether or not you’ll pay Stamp Duty as a first time buyer and the exact amount payable will depend on the price of the property you’re buying and its location. In England and Northern Ireland, if a property is £425,000 or less you won’t pay any Stamp Duty as a first time buyer.
If you are purchasing a property worth more, you’ll pay no stamp duty on the first £425,000 of the property value, but 5% on anything up to £625,000. If you’re buying a property worth more than £625,000, you won’t get any first-time buyer relief at all and you’ll need to pay the standard Stamp Duty rates.
In Wales, stamp duty is known as land and buildings transaction tax and the first £225,000 of a property’s value is tax-free. After this, you will pay 5% on any share of the property over £225,000 and below £400,000. For any portion above £400,000 you will pay 7.5%, up to the value of £750,000.
Scotland also has land and buildings transaction tax like Wales, but the first -time buyer threshold is less generous than the Welsh version. In Scotland there’s no tax payable on the first £175,000 of the property for first-time buyers, which will result in a reduction in the amount of tax payable up to £600.
What happens if I’m a first time buyer buying with a homeowner?
If you are buying a home with someone who's already bought a home, you won’t qualify for first time buyer stamp duty relief. In order to qualify for first time buyer stamp duty relief you both need to have never owned a property or been on the deeds for one before.
If you’re buying as a couple but are not married or in a civil partnership, you could buy the property in solely the first time buyer’s name to qualify for the relief, but then your mortgage application will be based on one person’s salary which could mean you can’t borrow as much.
When do you pay stamp duty?
If you’re buying a home in England or Northern Ireland, you’ll need to pay stamp duty within 14 days of completion. This is when all the contracts are signed and you get your keys to your new home.
If you’re using a solicitor, they’ll normally do any stamp duty related admin for you and let you know when the payment needs to be made. However, many solicitors will want you to send them the stamp duty money before the property purchase is complete to make this smoother.
Although solicitors will usually sort stamp duty out for you, it’s legally your responsibility to ensure it’s paid. Failure to pay stamp duty on time could result in a fine and interest.
Can I get first time buyer stamp duty relief if I’m using a guarantor mortgage?
Yes, if you’re buying as a first time buyer using a guarantor mortgage you’ll still be eligible for first time buyer relief as long as your guarantor is only named on the mortgage, rather than the property. To learn more about buying a house with help from family, take a look at our guarantor mortgages guide.
Can I claim first time buyer stamp duty relief if buying a shared ownership property?
Yes, if you’re buying as a first time buyer using shared ownership, you are eligible for first-time buyer stamp duty relief as long as you are buying through an approved shared ownership scheme.
Can I use my Lifetime ISA bonus to pay my stamp duty?
No, you cannot use your Lifetime ISA bonus to pay your stamp duty bill. Your LISA bonus must be used as part of the funds consolidated at the completion of the property transaction.
To learn more about the process of buying your first home, take a look at our buying a house timeline. This’ll walk you through the various steps involved so you have an idea what to expert.
If you’re feeling overwhelmed and have no idea where to start, talk to Tembo. We’ve helped hundreds of first-time buyers overcome common mortgage affordability obstacles such as a small deposit or modest salary. So if you’re worried your application will be rejected, our award-winning team can help. To get started, simply create a plan on our homebuyer platform to get a free, personalised recommendation. It only takes a few minutes, and there’s no credit check involved.
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