How first time buyers can benefit from the stamp duty holiday extension

How first time buyers can benefit from the stamp duty holiday extension

The extension of the stamp duty ‘holiday’ means we’re in for a hugely busy property market throughout the spring.

But even with a new deadline in place, buyers and sellers who want to benefit from the savings on offer will need to act quickly as the active spring market starts to pick up pace. In this piece, we’ll run through everything you need to know about stamp duty and the extension of the ‘holiday’, including how the rates are set to change later this year and what this will mean for first-time buyers.


What is stamp duty?

Stamp duty is the tax paid on property purchases in England and Northern Ireland.

The tax is different in Scotland, where it’s called Land and Buildings Transaction Tax, and in Wales, where it’s referred to as Land Transaction Tax.


Who pays stamp duty? The buyer or seller?

Buyers are required to pay stamp duty.

However, in the case of new build homes, often developers will foot the bill as an incentive for buyers.


Can stamp duty be paid in instalments?

When you buy a property, any stamp duty owed is due within 30 days of the date of completion, so stamp duty can’t be paid in instalments.


Current stamp duty rates

Since the stamp duty ‘holiday’ was introduced in July 2020, buyers in England have paid no stamp duty on the first £500,000 of a property’s purchase price.

And although those purchasing a second home, or landlords buying an investment property, have still had to pay the 3% additional property surcharge, they’re also able to make substantial savings.

The stamp duty ‘holiday’ was originally due to end on March 31, 2021 but has been extended until June 30.

So, until June 30, buyers in England will pay the following rates of stamp duty:


Portion of purchase price

Stamp duty rate

£0 - £500,000

0%

£500,001 - £925,000

5%

£925,001 - £1.5m

10%

£1.5m +

12%



Stamp duty rates after the holiday

In England, the stamp duty ‘holiday’ will be tapered off.

This means that the stamp duty exemption threshold will drop from £500,000 to £250,000 between July 1, 2021 and September 30, before reverting to £125,000 from October 1. So, between July 1 and September 30, buyers will pay:


Portion of purchase price

Stamp duty rate

£0 - £250,000

0%

£250,001 - £925,000

5%

£925,001 - £1.5m

10%

£1.5m +

12%


And from October 1, you’ll pay:


Portion of purchase price

Stamp duty rate

£0 - £125,000

0%

£125,001 - £250,000

2%

£250,001 - £925,000

5%

£925,001 - £1.5m

10%

£1.5m +

12%



Do first-time buyers pay stamp duty?

Under the stamp duty ‘holiday’, first-time buyers in England are treated the same as other buyers and pay no stamp duty on the first £500,000 of a property’s purchase price. However, when the ‘holiday’ ends in its current form on June 30, 2021, first-time buyers will then be exempt from the first £300,000 of a property’s purchase price – as they were before the ‘holiday’ was introduced and as long as the property they’re buying costs no more than £500,000


Stamp duty rates for first-time buyers in 2021

From July 1, 2021, first-timers in England will pay no stamp duty on the first £300,000 of a property’s purchase price up to a maximum price of £500,000.

If your property costs between £300,001 and £500,000, you’ll pay 5% stamp duty on the portion above £300,001. But if you’re a first-time buyer purchasing a property costing more than £500,000, however, you’ll pay the same rates of stamp duty that apply to other buyers from July 1.


How much money could I save during the stamp duty holiday?

This will depend on your property’s purchase price and whether or not you are buying an additional property.

But anyone buying a property for more than £500,000 under the current rules until June 30 stands to save £15,000 in stamp duty.

For example, a property costing £550,000 would have commanded a stamp duty bill of £17,500 under the old rules.

Until June 30, that same property will cost you just £2,500 in stamp duty – a saving of £15,000.


First-time buyer savings during the stamp duty holiday

If you’re a first-time buyer, you were already exempt from stamp duty on the first £300,000 of a property’s purchase price up to a maximum price of £500,000 before the ‘holiday’ was brought in.

So, if you’re buying a home costing £300,000 or less, you’ll see no change to your stamp duty bill if you buy before June 30.

However, a property costing £350,000, for example, would have previously cost a first-time buyer £2,500 under the old stamp duty rules.

Under the rules in place until June 30, that £350,000 property for a first-time buyer will be free of stamp duty – saving that £2,500.


Investors and buyers of second homes

Landlords purchasing buy-to-let properties or those buying second homes must pay a 3% additional property surcharge.

So, an investor who already owns at least one property, but who buys a rental property for £550,000, for example, would have been facing a stamp duty bill of £34,000 under the old rules.

Under the current rules until June 30, they would have to pay £19,000 – a saving of £15,000.


Stamp duty for international buyers

Overseas buyers in England and Northern Ireland have previously paid the same stamp duty rates as homegrown buyers.

However, in his announcement on July 8, 2020, the Chancellor confirmed a 2% stamp duty surcharge on overseas buyers would come into force in April 2021.


Is the stamp duty holiday going to be extended again?

The stamp duty ‘holiday’ in England is unlikely to be extended again, with the exemption rate of the property tax tapered off between July 1 and September 30 in England, before it reverts to its pre-pandemic rates from October 1.


Further reading…

The extension of the stamp duty ‘holiday’ is good news for sellers as well as buyers – and many sellers are taking advantage of huge buyer demand to secure a quick sale. Our guide tells you everything you can do to sell your house quickly before the stamp duty deadline.

One thing you can do to speed up the process of buying a home and beat the stamp duty deadline is buy at auction – take a look at our guide to the process.

First-time buyers, meanwhile, aren’t just benefitting from the extended stamp duty ‘holiday’ – 95% guaranteed mortgages are being launched this spring alongside the existing Help to Buy equity loan scheme.

We’ve outlined all the main facts about equity loans here.