Stamp duty changes for first-time buyers

Sue Ellis of JEM Financial Planning explains how the changes to stamp duty will affect those wishing to buy their first home

"I’m a first-time buyer and I’ve heard that there have been recent Stamp Duty changes announced by the Government. What are these, and how do they affect me?"

Stamp Duty is a ‘one off’ lump sum payment of tax that is payable to the Government when a property is purchased in the United Kingdom, with the amount payable being dependent on the price of the property being bought. 

In the Autumn Budget of 22nd November 2017, the Chancellor of the Exchequer Philip Hammond announced that he was making some changes to the Stamp Duty rules that would affect first-time buyers in England, Northern Ireland and Wales (but not Scotland, as this has an independent system of tax). This was seen to be another positive measure to further boost the property market for those wishing to buy their first home.

Prior to this date, first-time buyers would be required to pay Stamp Duty on any purchase of a property with a price of more than £125,000 with the duty being levied on a staggered basis above this threshold. No duty was payable on the first £125,000, with 2% being payable on the next £125,000. This then increased to 5% on purchases of £250,001 to £925,000, 10% on the proportion of the price from £925,001 to £1,500,000 and 12% on the upwards price. So, for example, a first-time buyer with a purchase price of £180,000 would have paid a total of £1,100 – i.e. nothing due on the first £125,000 and then 2% of the remaining £55,000.

Stamp Duty has now been changed for any first-time buyer in England, Northern Ireland (and Wales, until April 2018), meaning that if they are buying a property with a purchase price of less than £300,000, no Stamp Duty will be payable. For more expensive locations, such as London, 5% Stamp Duty will be due on the next £500,000.

So giving another example, a first-time buyer purchasing previously to the budget buying a property with a price of £475,000 in the capital would have paid a total of £13,750 (nothing on the first £125,000, £2,500 on the next £125,000 and £11,250 on the remainder) whereas now they would pay a total of £8,750 (nothing on the first £300,000 and £8,750 on the remaining balance).

The definition of a first-time buyer is strict and is defined to be just that. To qualify a property must never have been owned previously and if being bought in more than one name then all parties must fall under this ruling.

The Treasury has estimated that this will mean that 80% of first time buyers will pay no stamp duty at all, and 95% of them would benefit from a cut.

As I’ve said, this is a further attempt by the Government to attract buyers wanting to get on to the housing ladder, following on from the increased Stamp Duty rates and tax changes for landlords designed to slow down the Buy to Let market.

This has been welcomed by industry experts as a very encouraging sign that will greatly benefit first time buyers - who are finding it increasingly difficult to get on the property ladder in this day and age with increasingly rising house prices.

Sue Ellis works alongside Johnny Magee as a Mortgage Broker at JEM Financial Planning. The team has over 50 years’ experience in investment, retirement and inheritance planning, mortgages, protection and general insurance. To speak to Sue or Johnny, telephone 01386 840777 or visit www.jemfinancial.com.