Buying that first house is a time of excitement mixed with a little stress, a time of a little worry and a time filled with hopes and dreams. Before you get to embrace that roller coaster of emotions though, it pays to have a clear understanding of the financial obligations a property purchase incurs. Mortgages for first-time buyers are one thing to consider, but then you need to factor in homeowners’ insurance, life insurance, stamp duty, removal costs and conveyancing fees. It certainly brings that buzz of a potential home move down a little! Fear not, with specialist help you can navigate your way through the minefield and learn how much, what to pay and when to pay it.

In this edition of our blog, we look at stamp duty for first-time buyers. There is often a lot of confusion over what applies to first-time buyers and what doesn’t, so to make things simple, we’ll help where we can. First stop…stamp duty.

What is stamp duty?

Before we dive into whether stamp duty affects first-time buyers, it may be beneficial to explain what it is. Stamp duty or SDLT (Stamp Duty Land Tax) is the tax you pay when buying a property or piece of land that is priced at more than £250,000. It won’t matter whether the purchase is for a freehold or a leasehold and it won’t matter if you have a mortgage or are a cash house buyer.  The amount you pay is determined by the value of the house or land.

How much is stamp duty?

Currently, the Government has set stamp duty at the following rates for those buying a property that is not their first home.

It is important to know that you do not necessarily pay 5% on a home worth more than £250,000. You instead pay a 5% tax on the amount above £250,000. For example, if your home is worth £400,000, you will pay a stamp duty tax of 5% on the amount between £250,000 and £400,000.

So, are first time buyers exempt from stamp duty?

Sort of, but not quite. You can get away with no stamp duty on a first-time buyer property, but much depends on the value of the property and whether you are fully eligible to be exempt.

There is currently a first-time buyer stamp duty relief scheme in place. This allows first-time buyers a little more of a chance to obtain a home without the tax being applied. Announced in September 2022 it will now remain in place until March 2025. This is welcome news for many who have been saving and trying to find a way onto the property ladder. So how does it work?

Compared to stamp duty land tax for those who have previously owned a house, first-time buyer stamp duty is a little more favourable. First-time buyers can purchase a property up to the value of £425,000 and receive a discount on any home priced up to £625,000. Once a home goes above this price, the normal rates start to apply. So how much is stamp duty for first-time buyers? Our table below shows how it is currently calculated.

Just like with the more standard stamp duty, the rate is calculated on the amount above the threshold. For example, if your first property cost £725,000, you would pay 0% on the value up to £425,000, 5% on the value from £425,000-£625,000 and 10% on the remaining £100,000. Sounds a little confusing, doesn’t it?

What makes me eligible for first-time buyer stamp duty relief?

You might think simply being a first-time buyer is all you need to find yourself eligible for first-time buyer stamp duty relief, but it isn’t quite as simple as that. Firstly, to be eligible, the home must be your only, or main property. In addition, you cannot have previously owned a freehold property or have an existing interest in a leasehold.

It doesn’t stop there though. If you have inherited or owned a foreign property, you will find yourself ineligible for first-time buyer stamp duty relief for your home in this country.

Perhaps one of the biggest aspects of ineligibility is who you choose to live with. You may be a first-time buyer, but if your partner, friend, family member or colleague is not, you will not be able to claim the stamp duty discount for first-time buyers. All people on the mortgage application must be first-time buyers to make the stamp duty saving. If they aren’t the normal rates of stamp duty will apply/

How can I pay stamp duty for first-time buyers?

If you purchase a property above the £425,000 allowance, you’ll be required to pay stamp duty. Even if you don’t, you’ll still be required to complete a stamp duty return. In most cases, this will be handled by your appointed conveyancer. Once the amount owed has been calculated, you will need to send a payment to HMRC. This must be done within 14 days of completion. You can pay via cheque, bank transfer or via the HMRC website.

If you file it late you could be fined. A fixed penalty of £100 will apply if you make the payment up to 3 months late and £200 if you pay more than three months after the due date.

If you are a first-time buyer, speak to our experienced team at Mortgage Saving Experts. With our extensive knowledge of the mortgage industry, we can help you find the most affordable and suitable mortgage offers to help you secure your first home. Contact our team today to find out more.