Does a First Time Buyer Pay Stamp Duty?

13 December 2022
If you’re buying your first home you’re probably feeling a range of emotions, from excitement to anxiety, and maybe a little stress. You’ll need to get your finances in order, find out how much you can borrow for the mortgage and then find your dream home in a desired location. There’s a lot of jargon to wrap your head around, like freehold and leasehold, and you might be unclear and perhaps slightly overwhelmed when it comes to all of the additional costs involved. After all, it’s unfortunately not just the deposit on the property that you’ll need to factor into your budget.
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Legal fees, moving in costs, buildings insurance, surveys, and Stamp Duty Land Tax (SDLT) are just a few of those additional fees. SDLT is the government tax that is charged when buying a property in England or Northern Ireland. There are different rates of Stamp Duty depending on the type of property and its value. It will need to be paid within 14 days of purchasing your home. Generally speaking, your conveyancer will transfer the Stamp Duty when you exchange on the property. Conveyancing refers to the legal process that occurs after you have placed an offer on a property and it has been accepted. 

What Are the Stamp Duty Rates?

As mentioned above, there are different rates of Stamp Duty dependent on various factors. The Stamp Duty rates were altered on the 23rd of September 2022 so the following rates apply to any properties purchased after this date. Currently, in England and Northern Ireland, Stamp Duty only applies to properties that are over £250,000 and the rates are as follows:

£250,001 - £925,000 = 5%
£925,001 - £1.5million = 10%
Over £1.5million = 12%

As an example, if you are purchasing a property at £325,000, you will pay 0% on the first £250,000 and 5% on the remaining £75,000, so your total SDLT will be £3,750. There are lots of calculators online that can help you figure out the sum of SDLT that you might owe.

If you are a first time buyer, you’ll be pleased to learn that you can claim relief on your Stamp Duty. In England and Northern Ireland, there is currently no SDLT on anything below £425,000 and 5% on the portion from £425,001 to £625,000. If the property value is over £625,000, you won’t be eligible for relief and will follow the same rules as people who have bought a home in the past. In Wales, first time buyers won’t have to pay Stamp Duty on the first £225,000 and in Scotland they won’t have to pay Stamp Duty on the first £175,000.

Am I a First Time Buyer?

There are strict rules about who is classified as a first time buyer and therefore who can claim relief. For instance, you will not be eligible for first time buyer relief if you’ve previously owned a property that you inherited or was gifted to you, either in the UK or abroad, even if you didn’t buy it yourself. What’s more, if you are a first time buyer but purchasing the property with someone who is not a first time buyer, you will need to pay the full SDLT. The property you are buying must be your main residence. For instance, if you are purchasing a buy-to-let or a holiday home, you will be subject to the standard Stamp Duty rates.

Am I Eligible for Other Support as a First Time Buyer?

Fortunately, in addition to the SDLT relief, there is other support available for first time buyers. For instance, you could sign up to a Help to Buy ISA, in which the government will top up your savings by 25% (up to £3,000) but only if the property is less than £250,000 (or less than £450,000 in London). You do not have to pay this money back. Even if you are not eligible for the top up, it’s still worth having a Help to Buy ISA as they tend to provide better interest rates than regular savings accounts. You might also be eligible for a Help to Buy Equity Loan which will allow you to purchase a property with a deposit of 5% and borrow a percentage of the property value as a separate loan. However, the property must be a new-build and sold by a Help to Buy registered builder/firm.

If you are struggling to save up a large enough deposit alongside the other fees, there are options available that you could look into. For example, you could consider a family assist mortgage, in which a person can save a percentage of the money you’re hoping to borrow into a specific savings account or secures the mortgage against a percentage of their own property. 

Getting onto the property ladder is an incredible achievement, but it can often feel confusing and stressful. John Fowlers Solicitors are here to help clear up that confusion and ensure your first purchase is as straightforward as possible. We can provide expert advice on anything related to buying your home, from SDLT to the conveyancing process. So, if you’re looking for experienced and professional support, contact John Fowlers today.