Stamp duty for first time buyers: Cost, exemptions & relief

Jumping on to the property ladder can be one of the most challenging things to do at the moment, especially amongst the economic downturn and property market chaos.

But, good news - there are some ways you can automatically reduce your initial costs and taxes.

Stamp duty for first time buyers is a great way to relieve some of the stress while saving up, especially if the house you are looking to purchase costs less than £425,000. Qualifying for stamp duty relief could help you redirect your savings towards a larger deposit on a property. 

Are you looking to purchase a house and wondering what stamp duty for first time buyers is? Well lucky you! In this article we will discover all things first time buyer, stamp duty, its costs and exemptions. 

What is stamp duty?

Stamp duty land tax (SDLT) is a tax that is levied on the purchase of a property or piece of land, originally it was used as a temporary measure to raise funds for war in the 1600’s against France. 

Stamp duty applies to land and residential property which costs over £250,000 in England and Northern Ireland. If it's a second home, the property is automatically made to be liable for stamp duty. Stamp duty for first time buyers is not exempt up to £425,000 on the price of a property.

It doesn't matter if you're buying your property with cash or a mortgage, and if it's leasehold or freehold, the tax will still apply.

What does stamp duty cost?

There are varying bands for stamp duty, where different property prices are charged different percentages of tax.

Let’s say you agreed to purchasing a property for £275,000, you would be stamp duty tax exempt on the first £250,000. Then you would pay 5% on the remaining £25,000 which would amount to £1,250 in stamp duty costs. 

The stamp duty rates for freehold properties are as follows:

• Property price of up to £250,000 is 0%

• Property price of £250,000 - £925,000 is 5%.

• Property price of £950,001 - £1.5 million is 10%.

• Property price of £1.5 million plus is 12%.

If you are buying your first home, then stamp duty for first time buyers would mean you were exempt from stamp duty for the entirety of a £275,000 property. 

What if you’re purchasing a second home?

The rules on stamp duty for second homes are slightly different.

Whether this second property be a second home or a buy-to-let, the buyer will have to pay a 3% surcharge in stamp duty in addition to the rates listed above. As well as this, the minimum band goes upwards from £0, so any value above this will be charged.

Don't worry though, stamp duty doesn't apply to houseboats, mobile homes or caravans.

How do you pay stamp duty?

You can pay stamp duty yourself, but often your solicitor will do it on your behalf. You need to check this though, as ultimately you are the one responsible to pay it.

Even if you are paying under £250,000 for your home, you still need to submit a stamp duty return even though you aren't paying anything. This doesn't apply if you are exempt though.

Who counts as a first time buyer?

A first-time buyer is someone who has never owned or had a legal interest in a freehold or leasehold residential property, whether in the UK or abroad. A first time buyer is generally someone who has never owned a property before and means they have not previously had their name on the title deeds of a residential property. 

To be eligible for stamp duty for first time buyer relief, the property involved in the transaction must be their main residence and they must not have their name registered on the title deeds of another property – otherwise this would be a second home.

Property inheritance

You are not considered a first time buyer if you have inherited a property, since you own the house you are no longer classified as first-time buyer. This is because you are considered to have an interest in a property through inheritance.

However, if the property is left to you in will then you do not have to pay SDLT or file a return.

Jointly owned property

You are not considered a first time buyer if your name is on the deeds of another property, even if you don’t  own the home. If you are purchasing a property with another party, but one is a first time buyer and the other is not, then you will not be able to claim as a first time buyer. 

If you are married or in a civil partnership and your partner has owned a property before, then this will affect your eligibility for first time buyer relief.

Are there any first time buyer stamp duty calculators?

When you buy a home for the first time, there are stamp duty for first time buyer relief calculators which can help you work out whether you are eligible for relief, and what stamp duty rate you should pay. 

Do first-time buyers pay stamp duty?

There is a stamp duty for first buyer relief. If you're purchasing your first home in England or Northern Ireland, you won't be liable to pay stamp duty for up to a property value of £300,000. This means that you could save up to £5,000.

If the value of the property you're purchasing is not above £500,000, you'll pay stamp duty on only the portion which is above £300,000. However, if the home is worth over £500,000, you'll pay the standard rates of stamp duty on the whole amount.

In September 2022, it was announced that stamp duty for first time buyers would be set in place until 2025. 

Are there first time buyer stamp duty exemptions?

If the property you are buying has a purchase price of less than £425,000, you do not have to pay any stamp duty for first time buyers. This means that properties priced below this stamp duty threshold are eligible for a complete first time buyer stamp duty exemption. 

How do first-time buyers avoid stamp duty?

In order to avoid first time buyer stamp duty, then you will need to ensure that the price of the property is below £425,000 in England and Northern Ireland, and that you meet the first-time buyer definitions. 

What is first time buyer stamp duty in Wales?

At the moment, there is no stamp duty for first time buyer relief in Wales, and you are liable to pay the same LTT (Land Transaction Tax) bill, no matter if this is your first home or not. But, you may have to pay first time buyer stamp duty if the property costs less than £180,000. 

What is first time buyer stamp duty in Scotland?

If you are buying a property in Scotland, you’ll  pay no stamp duty or LBTT (Land and Buildings Transaction Tax) if the property costs less than £175,000. 

How do first-time buyers pay stamp duty?

Unless you are DIY conveyancing, your conveyancer should handle or guide you through this process. If you are liable to any first time buyers then the payment will need to be sent to the HMRC (HM Revenue and Customs) within 14 days of the completion date.

What is first-time buyer relief?

Stamp duty for first time buyer relief in the UK is a tax benefit or concession provided to people who are purchasing their first residential property. The relief is designed to make it more affordable for first time buyers to get onto the property ladder by reducing or eliminating the amount of Stamp Duty Land Tax (SDLT) they are required to pay.

SDLT is a tax levied on property transactions in England and Northern Ireland, while Scotland has LBTT and Wales has LTT tax systems. 

What types of mortgage qualify for first-time buyer stamp duty relief?

If you are buying a property for the first time, some types of mortgages may make you ineligible for first time buyer relief:

• Joint mortgages: If you are wanting to get a joint mortgage with someone else, you must ensure that all parties involved have not had any legal interest in residential property beforehand.

• Guarantor mortgages: As long as your guarantor is not named on the title deeds on the property, and you are instead, you will be able to claim first time buyer stamp duty relief.

• Shared ownership: First time buyer stamp duty relief is available with shared ownership, but only if the total value is less than £625,000 — even if you only decide to buy a share of the property. 

• Gifted deposit mortgage: As long as the giftee does not appear on the title deeds, then you will be able to claim stamp duty relief.

Who is exempt from paying stamp duty?

Stamp duty exemptions happen when people and transactions are not required to pay Stamp duty land tax, providing relief from the tax burden to promote property ownership, and encourage economic development.

Common exemptions include stamp duty for first time buyers and shared ownership arrangements purchasing below the threshold. Other stamp duty exemptions include:

• Transactions where no money or payment changes hands. 

• Property is left in will.

• Property is transferred because of divorce or dissolution of a civil partnership. 

• The property being purchased is freehold and costs less than £40,000. 

Are there any situations where stamp duty doesn’t apply?

There are yes. If you're going through a separation/divorce and one party is buying the other out of the home, there's no stamp duty which applies during this transfer.

If you're transferring the deeds of your home to someone, whether it be through a will or as a gift, the receiver won't need to pay any stamp duty.

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