New laws introduced in 2017 will allow first-time buyers to save money.
On 22 November, it was announced that first-time buyers in the UK are now exempt from paying Stamp Duty on purchases up to £300,000, and will receive additional relief on properties up to £500,000.
The intention of this new policy is to make properties more affordable to first-time buyers, as Stamp Duty can be quite a large outlay, especially since it must come from savings rather than a mortgage.
So we’ve put together a guide to help first-time buyers find out how much they must pay – and how much they can save.
The new rates
Under the new policy, first-time buyers will be completely exempt from paying Stamp Duty on purchases of residential properties worth up to £300,000, saving them up to £5,000. Additionally, on purchases worth £300,000 to £500,000, first-time buyers will not have to pay Stamp Duty on the initial £300,000, and will then only pay 5% on the remainder. If the property is worth more than £500,000 then first-time buyers will pay Stamp Duty as normal.
As an example, if a first-time buyer is purchasing a property for £420,000, then they will pay no Stamp Duty on the first £300,000 and 5% on the remaining £120,000, which works out to £6,000. Under the previous system, the buyer would have had to pay £11,000 in Stamp Duty.
Table 1 shows the new payment scales for Stamp Duty in England and Northern Ireland.
|Band||Current standard rates||Rate for first time buyers|
|Up to £125,000||0%||0%|
|More than £125,000 and up to £250,000||2%||0%|
|More than £250,000 and up to £300,000||5%||0%|
|More than £300,000 and up to £500,000||5%||5% of the total price minus £300,000|
|More than £500,000 and up to £925,000||5%|
|More than £925,000 and up to £1.5 million||10%|
|More than £1.5 million||12%|
The first-time buyer Stamp Duty relief is currently available in England, Wales and Northern Ireland. However, it will cease to apply in Wales from April 2018, when the policy will be replaced by the Land Transaction Tax.
Rates in Wales and Scotland
Under this new policy, buyers will pay no tax on properties worth up to £180,000, and the tax on properties worth more will continue on a sliding scale similar to that currently in place for Stamp Duty, as shown in Table 2.
According to the Office for National Statistics, the average house price in Wales is £152,661, while the average paid by first-time buyers is £131,735. By raising the cut-off for a tax-free purchase from £125,000 to £180,000, up to 65% of buyers will be able to purchase properties without paying any tax.
|Band||New rate (as of April 2018)|
|Less than £180,000||0%|
|More than £180,000 and up to £250,000||3.5%|
|More than £250,000 and up to £400,000||5%|
|More than £400,000 and up to £750,000||7.5%|
|More than £750,000 and up to £1.5 million||10%|
|More than £1.5 million||12%|
Scotland already has a similar system to Stamp Duty: Land and Buildings Transaction Tax. Rates of this have been unaffected by the new system, and are listed in Table 3.
|Band||Land and Buildings Transaction Tax|
|Less than £145,000||0%|
|More than £145,000 and up to £250,000||2%|
|More than £250,000 and up to £325,000||5%|
|More than £325,000 and up to £750,000||10%|
|More than £750,000||12%|
Qualifying as a first-time buyer
To qualify for the Stamp Duty relief, you must be a first-time buyer, which is defined by certain criteria. The main one of these is that you should have never owned any residential property in the UK or abroad, including freeholds, an interest in leaseholds or even an inherited property, as the status of being a first-time buyer is defined by ownership rather than by having bought a property. Married couples purchasing a property together must also both qualify as first-time buyers to benefit from the Stamp Duty relief.
Unmarried couples can qualify for the reduction if the only person named on the mortgage deed is a first-time buyer. However, this means that the mortgage application can only be in one person’s name, so the amount that can be borrowed will be based on their income alone. As a result, you may find that you are not able to borrow as much as you hoped, or that the interest rates on the repayments are higher.
Since the maximum you can save with the Stamp Duty relief is £5,000, you may find it more economical to pay the duty to make the mortgage more affordable. Furthermore, if the property is only in one partner’s name, then the other will have no legal claim to the property if they split up.