Do first time buyers pay stamp duty?

Do first time buyers pay stamp duty?


Buying your first house or flat must be one of life’s most exciting experiences. As long as you keep up your mortgage payments it’s yours, a place you can decorate any way you like, somewhere to relax, a place of your own to invite friends and family, and a place you can call ‘home’. Luckily, as a first time buyer you enjoy some real advantages, and one of them is Stamp Duty relief. This article delves deep into Stamp Duty for first time buyers, also called Property Rates, exploring who needs to pay Stamp Duty and why it varies for different homeowners, and revealing the current Stamp Duty rates. Read on to become a first time buyer Stamp Duty expert.


What is stamp duty?


What is stamp duty? Stamp Duty is simply a kind of tax. It’s payable when you buy a residential property or a piece of land in England or Northern Ireland that’s worth more than a certain amount, and it’s due whether you buy leasehold or freehold, whether you have a mortgage or not. People buying in Scotland pay Land and Buildings Transaction Tax and in Wales it’s called Land Transaction Tax.

Right now we’re entering a period of change. As an ordinary buyer rather than a first timer, if you purchase your main property on or before 30th September 2021 there’s no Stamp Duty to pay on properties costing up to £250,000. If the place you’re buying costs more than a quarter of a million pounds, you’ll pay Stamp Duty according to the purchase price.

 From 1st October 2021 you’ll pay Stamp Duty on residential property costing more than £125,000 unless you’re a first time buyer, in which case you’ll qualify for first time buyer relief. Right now, as a first time buyer, there’s no Stamp Duty payable on homes costing up to £300,000. From £300,000 to £500,000 there’s a discounted rate of 5%, and for a property worth over £500,000 you pay normal Stamp Duty rates on the entire purchase price.  

If you’re buying a second home you’ll pay an extra 3% Stamp Duty if it costs more than £40,000, and the tax will be due at the rate applying at the time.

Here are a couple of examples of Stamp Duty for first time buyers. Say, as a first time buyer, you purchase a flat costing £295,000 there’s no Stamp Duty to pay on that. If you buy a place for £350,000 you only pay 5% stamp duty on the £50,000 that falls over your £300,000 limit, which means your Stamp Duty bill will be £2,500.


Do they pay stamp duty?


So what qualifies you as a first time buyer? You’re only eligible for a discount on Stamp Duty for first time buyers when you have never owned a property before, here in the UK or abroad, whether you inherited it or bought it yourself.  You can only claim relief when the property you buy is your only residence and your main residence. And buy-to-let purchases don’t qualify for Stamp Duty relief.

Do first time buyers pay stamp duty? Currently, you’ll only pay the tax when the place you’re buying costs more than £300,000. You pay the tax on the amount that falls over £300,000 and there’s a discounted rate as long as the place isn’t costing you more than half a million pounds. If it costs more than £500,000 you’ll pay the tax at the full rate. As a first time buyer you might end up paying some stamp duty but most don’t, simply because most typical first time buyer properties cost less than £300,000. If you’re buying in London, though, you might find you’ll pay more than half a million for a first time property.  

  • Imagine you’re paying £400,000 for your first home. Your Stamp Duty bill will be £5,000, in other words 5% of the £100,000 you’re paying over the £300,000 relief limit
  • Say you pay £195,000 for your first home. You don’t pay property rates because the place you’re buying costs less than £300,000
  • You pay £501,000 for your first home, which means you’re liable for normal Stamp Duty rates of 5% on the entire cost, total £25,050  


First time buyer rules for couples


What is Stamp Duty for couples? Anyone who has owned their own home before can’t say they’re a first time buyer, and this applies whether or not you actually bought the place yourself. You might have inherited a property. In the Stamp Duty world this still means you’re classified as having owned property before. In this case never having owned your own home before isn’t the same thing as never having bought one before. 

As a couple this can complicate things. You might be buying your first place as a couple but if one of you has previously owned a home of their own, you can’t quality as first time buyers. The same applies if your parents, family or anyone else buy your first home for you. If they already own their own home they can’t claim first time buyer status when buying a place for you.

How does this affect your Stamp Duty rates?

  • If one of you has already owned a property and you want to buy a place together costing £350,000 you can’t claim first time buyer status. Your Stamp Duty will be 0% of the first £250,000 and 5% on the remaining £100,000, resulting in a bill of £5,000
  • If both of you are first time buyers and want to purchase your first home for £350,000 you’ll only pay the tax on the £50,000 that falls over the £300,000 limit. Your bill will be £2,500 (5% of £50,000)

Rules for single and joint mortgages


What is Stamp Duty for joint mortgages? Property is expensive, so you might think about buying with a family member, for example jointly with your parents. This means you won’t benefit from the current first time buyer stamp duty exemption. Exactly the same as buying with your other half, as a couple, the rules are clear – everyone buying the property must be a first time buyer.

So how, exactly, does a parent and child mortgage impact stamp duty?

  • If nobody involved owns any other property and everyone’s a first time buyer, a property costing £200,000 would fall under the first time buyer limit and there wouldn’t be any Stamp Duty to pay
  • If your parents already own their home and help you buy, the same £200,000 property would result in a Stamp Duty bill of 0% on the first £125,000 and 5% (3% more than the normal rate) on the remaining £75,000, totalling £3750


When is Stamp Duty changing?


Stamp Duty Land Tax payments are changing soon, returning to the normal rates on 1st October 2021. This leaves you a short window where you can take advantage and potentially save yourself a lot of money. As a first time buyer it makes a lot of sense to buy now. Luckily you’ve landed in exactly the right place! Click here to find a collection of fantastic properties perfect for first time buyers