About Stamp Duty for First-Time Buyers

The UK Government is committed to all would-be homeowners having the option to buy their own home; that’s why there are so many attractive programs for first-time buyers, and why the subject features heavily in government budgets. If you’re keen to learn all about Stamp Duty, its devolved counterparts, and how it all affects first-time buyers, we’ll break down the key components.

What is Stamp Duty?

In short, it’s a tax on property purchases. There are actually different names for Stamp Duty depending on where you live, but they all have the same general purpose: to collect money for the government coffers on every eligible land and property sale. According to gov.uk, “you must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.

The tax is different if the property or land is in;

• Scotland – you pay Land and Buildings Transaction Tax.
• In Wales – you pay Land Transaction Tax if the sale was completed on or after 1st April 2018.”

This allows the devolved administrations to collect direct revenue on home and property sales in their countries, but it also changes what you pay, when, and to whom, depending on where you are in the UK. Your solicitor can advise you of what is owed and will usually pay it on your behalf.

How much is Stamp Duty?

Depending on where you live, you may not have to pay any tax at all. England, Northern Ireland, Scotland, and Wales all set their own levels as devolved governments. Plus, with the benefits of Covid relief measures still in place, when you buy matters too. Here’s the rundown based on today’s system:

• England & NI - no Stamp Duty up to £500k, then that lowers to an exemption on the first £300k from 1st July, 2021. That’s because first-time buyers had an exemption up to £300k on their first residence before Covid relief was put in place.
• Wales - no land transaction tax up to £250k until 30th June, 2021, then it drops back to £180k tax exemption.
• Scotland - no land and buildings tax up to £250k until 31st March, 2021, then that reduces to an exemption on the first £175k.

Current exemptions cover 85% of all home purchases, so there’s a big chance you’ll owe nothing.

“Okay, but what if the property I’m buying is more expensive than that? What will I pay?”

Usually, it will only be 5%. Here are the rates for England & NI, Scotland and Wales. You only pay tax on the amount that goes over the threshold. So, in England, if you purchased a home on 30th June, 2021 for £550k, you’d only pay the 5% Stamp Duty on the £50k. However, if you waited until 1st July to close that sale – just one day later – you’d pay a 5% Stamp Duty on £250k. That’s a vast difference of thousands of pounds. So, if you’re in the market for your first home, it’s a great idea to shop now.

When do I need to pay Stamp Duty?

In Scotland and Wales, you have 30 days to pay, but in England & NI, you must now pay within 14 days of completion. In most cases, your conveyancer will do this for you, but you can also pay for it yourself if you wish. Either way, you’re still ultimately responsible for making sure it’s been paid. Be sure this has been completed or you could face some nasty fines.

How do I pay Stamp Duty?

How you pay depends on where you are. As we mentioned before, most of the time this is done by your conveyancer, who will then they’ll you for it afterwards. However, if you want to pay it yourself, that is an option. Each of the devolved governments has its own processes:

• England & NI – You can pay HMRC directly by phone or online, or you can also pay with help at your bank or post office.
• Scotland - Pay online or by phone directly to Revenue Scotland. These are currently the only ways to pay, but post-Covid may allow postal payments to resume.
• Wales - Pay the Welsh Revenue Authority online or by phone directly. There are currently no other ways to pay due to Covid restrictions.

Remember, you need to file a Stamp Duty return even if you’re exempt and there is no money owed.

Can I just add it to my mortgage?

Yes, you can, but it’s not necessarily a good idea. According to MSE, “There are two main things to consider here. Firstly, as mortgages tend to be taken out over a long term (25 years or more), that's normally how long the Stamp Duty borrowing will last too. Over a 25-year term at a rate of 5%, that extra £5,000 borrowing will cost around £8,500 in interest, so it's vital to be aware of the cost. Secondly, this could affect your loan-to-value ratio (LTV) – the measure of how much of a property's value you are borrowing.” You could actually end up in negative equity or with less attractive rates simply by adding on Stamp Duty to your mortgage.

Who doesn’t pay Stamp Duty?

You won’t need to pay any Stamp Duty if your property is under the threshold. MSE also states the following exemptions:

• Transfer of property in separation or divorce. If you’re divorcing or separating from your spouse or partner, there’s no Stamp Duty to pay if you transfer a proportion of your home’s value to them.
• Transfer of deeds. If you transfer the deeds of your home to someone else – either as a gift or in your will – they won’t have to pay Stamp Duty on the market value of the property.

Overall, most first-time buyers will enjoy an exemption from Stamp Duty, but it’s good to be informed should your property fall outside of the allowances. When you’re ready to start your conveyancing, you can find an expert for free with our tool.