Stamp duty for first-time buyers – what are the rules around exemption

Special rules apply when calculating your first time buyers stamp duty bill, to reduce the upfront costs of buying a first home – here’s how it works
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  • If you’re looking to get on the property ladder, make sure you know the different rules around stamp duty for first-time buyers, which should mean a lower stamp duty bill

    Did you know that there are different rates of stamp duty for first time buyers? If you’re looking to buy a house for the first time, make sure you’re aware of the relief that you are entitled to, should you and the property you want to buy meet the required criteria.

    Buying a house can be an incredibly expensive activity, with every penny counting. This is particularly the case for first-time buyers, with those looking to get onto the property ladder for the first time often spending years trying to save for a house.

    One of the issues holding back first-time buyers is the fact that there are all sorts of additional costs for buyers to consider, beyond the transaction cost, including stamp duty. Thankfully for first-time buyers, stamp duty rules that offer exclusive exemptions to paying the tax are available.

    Stamp duty is paid when you purchase a property or land in England or Northern Ireland. There is a similar tax setup in place in Scotland and Wales.

    Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher, explains: ‘First-time buyer reliefs are intended to make it easier for people to take that first step on the property ladder. The reliefs vary as each part of Great Britain has its own regime for taxing the purchase of homes.’

    A stamp duty holiday was introduced during the pandemic, in a bid to keep the housing sector moving. The holiday, which concluded in October 2021, meant that the threshold, or minimum property price, at which stamp duty kicks in was raised from £125,000 to £500,000. It gave homebuyers of all kinds the opportunity to move up the ladder at a reduced cost, saving as much as £15,000.

    Do first-time buyers have to pay stamp duty?

    The stamp duty system doesn’t mean that first-time buyers automatically avoid paying stamp duty altogether. However, it does mean that they will pay less than those already on the housing ladder who purchase a new home.

    The table below breaks down the standard stamp duty band rates in England and Northern Ireland, and how this compares to the rates that apply to first-time buyers only.

    Portion of purchase price Standard rate of stamp duty First-time buyer stamp duty rate
    £0 to £125,000 0% 0%
    £125,000 to £250,000 2% 0%
    £250,000 to £300,000 5% 0%
    £300,000 to £500,000 5% 5%
    £500,000 to £925,000 5% 5%
    £925,000 to £1,500,000 10% 10%
    £1,500,000 12% 12%

    As you can see, existing home buyers start paying stamp duty on purchases worth above £125,000. However, first-time buyers do not start paying the tax until the transaction is worth more than £300,000.

    To see how the exemption works in practice, let’s take the example of a non-first-time buyer purchasing a house for £300,000:

    • On the first £125,000 you pay £0
    • On the portion between £125,00 and £250,000 you pay 2% which is £2,500
    • Between £250,00 and £300,000 you pay 5% which is £2,500

    As a result, you will have a total stamp duty bill of £5,000.

    However, a first-time buyer making the equivalent purchase would not pay a penny in stamp duty, thanks to exemptions introduced in the 2017 Budget.

    According to recent analysis by Barclays, the average price paid by first-time buyers purchasing a property in 2021 sat at £281,900. This suggests that the majority of first-time buyers would not have had to pay stamp duty because of the exemption, even if the stamp duty holiday had not been in place.

    The government has a handy stamp duty calculator that will work out your bill depending on your circumstances.

    new build block of contemporary flats

    Image credit: Future PLC/ Robert Sanderson

    It’s worth noting that the first-time buyer relief, like stamp duty itself, is a little different in Scotland. Here the minimum threshold before first-time buyers start paying Land and Buildings Transaction Tax ‒ the Scottish equivalent of stamp duty ‒ stands at £175,000.

    Meanwhile, in Wales, there is no specific exemption for first-time buyers. However, homebuyers of all kinds do not pay Land Transaction Tax on the first £180,000 of any transaction.

    Walford-Fitzgerald adds: ‘Wales does not give any special relief for first time buyers, but the starting point for Land Transaction Tax is the highest of the three countries, starting at £180,000 unless you are buying an additional property. While this is undoubtedly welcome, it is unlikely to be the biggest concern for first-time buyers trying to scrape together a deposit and worrying about the affordability of a mortgage.’

    First-time buyers stamp duty – what are the rules around exemption?

    One important aspect of the exemption is that it is only intended to apply to first-time buyers of residential property. To qualify, you must have never had a major interest in a residential property anywhere in the world. This would include property inherited from a loved one.

    In addition, the first-time buyer must plan to live in the property as their home and if it is a joint purchase both buyers must meet HMRC’s conditions.

    When might first-time buyers have to pay stamp duty?

    Buying a first home priced at more than £300,000 will trigger a stamp duty bill for the buyers but it will be less than that paid by someone moving up the property ladder rather than taking their first step onto it.

    So if you are buying in one of the more expensive regions of the UK, like London or the southeast of England, then you may still end up having to pay some stamp duty, albeit less than a regular home mover might pay.

    For example, let’s say you purchase a property in the capital for £450,000. Your stamp duty would be:

    • On the first £300,000 – £0
    • Between £300,000 and £450,000 at 5% – £7,500.

    Without the first-time buyer stamp duty exemption, the tax bill would be £12,500. Even with the best first-time buyer mortgage rates in place that’s a cost of living any new homeowner could do without.

    Be warned though that for more expensive purchases, you may not enjoy any first-time buyer exemption at all. For first-time buyers purchasing a property that costs more than £500,000, any first-time buyer relief is withdrawn entirely.

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