New rules introduced in the government’s 2017 autumn budget mean that first time buyers purchasing a property for £300,000 or less in England, Wales and Northern Ireland will no longer pay stamp duty.
This exemption will also benefit first time buyers of property worth up to £500,000, who will see the first £300,000 of their new property’s value exempt from stamp duty. This means their liability will be calculated only on the value of the property above this threshold.
For anyone buying a first property worth over £500,000, the first £300,000 will not be exempt from stamp duty, meaning they will pay the same rate as before the cut.
The Chancellor of the Exchequer, Philip Hammond, announced the stamp duty cut in his autumn budget delivered on 22 November. The cut took effect immediately and, according to the Chancellor, means 80% of first time buyers will now pay no stamp duty and a further 15% will benefit from the reduced rate for properties valued up to £500,000.
How much can you save under the new stamp duty rules?
Under the previous stamp duty rules, first time buyers paid stamp duty on any property bought for more than £125,000. This meant that someone buying a property worth £208,000 (the current average price for a first time buyer property in the UK) would pay £1,660 in stamp duty. That same buyer will now pay nothing.
Someone buying their first home for between £300,001 and £500,000 will now pay £5,000 less in stamp duty. With the average first time buyer property in London currently costing £410,000, this means the average stamp duty bill in London has fallen from £10,500 to £5,500.
The reason for the cut was given as being due to a drop in the number of 25-34 year olds owning their own home over the past 13 years from 59% to 38%. The Treasury claims the stamp duty cut will help over 1 million first time buyers to get onto the housing ladder over the next 5 years.
How stamp duty for first time buyers works
Stamp Duty Land Tax (commonly referred to as ‘stamp duty’) is a tax on all land transactions in the UK (except Scotland). When you buy a home, you (or more usually your solicitor) must fill out a Stamp Duty Land Tax return. You (or your solicitor) need to enter a code on the form indicating that you are a first time buyer, work out your liability and make sure the relevant sum is paid to the Treasury.
To qualify as a first time buyer, you must never have owned any part of a freehold or leasehold property, either in the UK or elsewhere in the world. This includes having inherited property or being a beneficiary of a trust that owns a property. If buying a home with someone else, you must both qualify as first time buyers to get the stamp duty exemption and the property must be intended to be your only or main residence.
It is important to note that, because there are different rules for stamp duty in Scotland, the cut will not apply there. Responsibility for setting and collecting stamp duty will also be devolved in Wales from April 2018 onwards, meaning that while the cut currently applies to property in Wales, it will be up to the Welsh government to decide if this continues to be the case after that date.
For specific advice on your liability for Stamp Duty, any other aspect of the conveyancing process, or to request a quote for your conveyancing, please get in touch with Daniel Francis on 01202 292 424.