Chancellor’s Rishi Sunak’s announcement that buyers in England and Northern Ireland would be given a stamp duty ‘holiday’ until March 31, 2021 was a huge boost to the UK property market.
But what does the stamp duty ‘holiday’ mean for first-time buyers?
Who qualifies as a first-time buyer?
A first-time buyer is someone who has never owned a property in the UK before.
That includes a property used as a home, an investment property and properties inherited from relatives.
If you’ve purchased or become owner of any of these kinds of properties, you aren’t classed as a first-time buyer.
Do first-time buyers pay stamp duty?
First-time buyers were already exempt from paying stamp duty on the first £300,000 of a property’s purchase price (up to a purchase price of £500,000), following changes made by the government in the 2017 autumn Budget.
Those rules meant many first-timers already paid no stamp duty at all, even before the new £500,000 stamp duty threshold came in to effect on July 8.
According to the Halifax, first-time buyers in the UK paid an average of £231,455 for their first home in 2019 – a figure well below that previous £300,000 threshold for stamp duty.
First-time buyer stamp duty: What are the new rules?
Essentially, the stamp duty ‘holiday’ means first-time buyers will get stamp duty relief on the first £500,000 of a property’s purchase price rather than £300,000 under the previous rules.
But with most first-timers paying below £300,000 for their first home, the new £500,000 threshold will have no benefit unless you’re a first-time buyer lucky enough to be able to afford a property costing more than £300,000.
For example, if you were buying a property for £450,000 before the Chancellor’s stamp duty holiday kicked in, you would have paid 5% stamp duty on the £150,000 above the old £300,000 first-time buyer threshold.
That would have meant a stamp duty bill of £7,500.
Under the new rules and the £500,000 threshold, you’ll pay no stamp duty at all, meaning a saving of £7,500.
What happens if we’re buying as a couple and one is a first-time buyer and one is not?
If you’re buying a property with someone else and one of you has owned a property in the UK before, you won’t be classed as first-time buyers.
Both buyers in a couple need to have never owned a UK property, either as a home or as an investment, for you to be classed as first-time buyers.
While that would have affected your stamp duty bill under the old £300,000 first-time buyer threshold rules, now the Chancellor’s stamp duty ‘holiday’ is in place, unless you’re buying a property costing more than £500,000, you’ll pay no stamp duty – regardless of whether or not you’re classed a first-time buyer.
What effect will the stamp duty holiday have on the property market?
With the UK market largely stagnant due to the coronavirus pandemic, the raising of the stamp duty threshold to £500,000 is seen as a sure-fire way to kick-start buyer activity.
And it appears to have done just that since the Chancellor’s announcement was made on July 8.
Traffic to property portal Rightmove shot up by 22% in the first 30 minutes after the Chancellor’s announcement, with a record 5.8million visits to the Rightmove website on July 8 alone.
Property prices are also on the rise in many areas of the UK, according to Rightmove:
North West
Growth since March Covid lockdown: 3.5%
Annual growth: 4%
North East
Growth since March Covid lockdown: 2.2%
Annual growth: 2.5%
Yorkshire & Humber
Growth since March Covid lockdown: 4.1%
Annual growth: 5.2%
East Midlands
Growth since March Covid lockdown: 3.4%
Annual growth: 4.8%
West Midlands
Growth since March Covid lockdown: 2.9%
Annual growth: 4.1%
Can I buy an investment property as a first-time buyer and still save on stamp duty?
If you’re looking to become a first-time landlord and buy an investment property as your first purchase rather than a home, the new stamp duty rules will still apply to you.
Landlords who already own a property are subject to a 3% stamp duty surcharge, but as an investment buyer who doesn’t own any property already, this surcharge would not apply.
That means you can buy an investment property costing up to £500,000 and pay no stamp duty at all, while paying the following on any amount over £500,000:
- £500,001 to £925,000 – 5% in stamp duty
- £925,001 to £1.5m – 10% in stamp duty
- Amount over £1.5m – 12% in stamp duty
Existing landlords or those buying second homes add that additional 3% to the rates above.
Further reading…
As well as stamp duty, there are a host other costs you should always factor in when moving home. Check out our guide to the true cost of moving for more…
