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Do I Need To Pay Stamp Duty As First-Time Buyer?

If you’re buying a home for the first-time, you may need to budget for stamp duty as part of the expenses involved in your new home purchase. Stamp duty land tax (to give it it’s full title – or SDLT) is a one-off tax that must be paid when you buy a property in England and Northern Ireland, costing more than a certain threshold.

Do first time buyers pay stamp duty?

In an effort to help more people onto the housing ladder, the government has made changes to the stamp duty threshold over recent years. This means that, as a first-time buyer of property priced up to £500,000, you will pay no stamp duty on the first £300,000 (or £500,000 if a shared ownership property).

While this has been good news for many prospective homeowners, the cost of property in south west London means that it’s likely you will still need to pay something. If you are new to buying property, it is important to understand how stamp duty works by speaking to a mortgage adviser.

What is stamp duty?

Stamp duty must be paid when you buy residential property or land in England and Northern Ireland that costs more than £125,000. The rate at which you pay stamp duty depends upon the purchase price. In Wales it is known as Land Transaction Tax (LTT) and in Scotland it’s Land and Buildings Transaction Tax (LBTT).

Different rules apply for first-time buyers. There is also an additional stamp duty levy for people buying a second property. First-time buyers in England and Northern Ireland, purchasing properties costing up to £500,000, don’t pay stamp duty on the first £300,000 and pay 5% on the portion between £300,000 and £500,000.

In addition, the autumn 2018 budget extended the stamp duty tax exemption to first-time buyers purchasing shared ownership properties valued at up to £500,000. This change applies to homes purchased on or after 22 November 2017.

The concept of first-time buyer and stamp duty

You will not be considered a first-time buyer if you have owned or inherited a property before or if you have been named on the deeds of another property. Nor will you be eligible if you are married and your spouse has owned a property in the past, even if you have never owned a property in your own right. However, if you are not married but living with a partner who has owned a property, and you have not, you will be considered a first-time buyer.

If you are purchasing a buy to let property, you won’t be considered a first-time buyer either, even if you haven’t owned property before – although you are allowed to rent out a room in your home.

What will I pay if I’m not considered a first-time buyer?

Stamp duty is a progressive tax, meaning you pay a higher percentage as the property price rises – but you only pay the higher rate for the portion of the price at that rate.

Stamp Duty Rates

  • Up to £125,000- 0%
  • The next £125,000 (the portion from £125,001 to £250,000)- 2%
  • The next £675,000 (the portion from £250,001 to £925,000)- 5%
  • The next £575,000 (the portion from £925,001 to £1.5 million)- 10%
  • The remaining amount (the portion above £1.5 million)- 12%

You can work out exactly how much you will need to pay by using a stamp duty calculator – there is one on the government website.

Higher rates for additional properties

You will usually pay 3% on top of the normal stamp duty rates if buying a home means you will own more than one property. Find out more about additional property rates on the government website.

How to pay stamp duty?

You have 14 days from completion date to file your stamp duty return and pay (previously the time limit was 30 days). If you don’t pay on time, you could be fined.

In most cases, the solicitor carrying out your conveyancing will pay the tax on your behalf at completion and add the amount to their fees. They will also claim any stamp duty relief you’re eligible for, such as relief for first-time buyers. However, it is your responsibility to ensure that the stamp duty is paid.

Other benefits for first-time buyers

The government’s Help to Buy schemes including Help to Buy: Shared Ownership and Help to Buy: Equity Loan are designed to help people get on the property ladder. If you took out one of the Help to Buy ISAs before 30 November 2019, you will also receive a government bonus to boost your deposit.

In conclusion, first-time buyers should plan and budget for stamp duty in advance. It will help the smooth completion of the property transaction. Home buyers often budget the whole savings amount in the deposit and miss out the stamp duty liability. An experienced mortgage adviser would help you to budget for all related costs including stamp duty.

As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments.

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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