Stamp Duty For First Time Buyers: What You Need To Know

Published on: July 18, 2023 Published in: News

Stamp Duty, or SDLT, can be a tricky thing to understand for first time buyers. This guide should help you to understand what SDLT is, when it applies and what you’re entitled to as a first-time buyer.

Firstly, what is a first-time buyer?

HMRC defines a first-time buyer as “an individual or individuals who have never owned a major interest in a residential property in the UK or anywhere else in the world and who intend to occupy the property as their main residence.”

What SDLT benefits do first time buyers get?

Under UK property law, Dwellings (homes) are defined as “a unit of Residential accommodation that has independent access to a single person or by people living together as a residency and includes facilities that offer a degree of privacy and would support independent living.” These include a building, caravan, houseboat or any other mobile home. Certain taxes, such as SDLT, are paid when you buy a qualifying property in the UK.

SDLT (Stamp Duty Land Tax) is required to be paid on the following:

Freehold property
A new or existing leasehold
Property acquired through the shared ownership scheme
Transferred land or property in exchange for payment

How does SDLT relief work?

On the purchase of your first home, you may be eligible for SDLT relief, which reduces the amount of tax you pay. A first-time buyer of a residential property can claim relief on purchases where the purchase price is no more than £625,000. An SDLT return must be made to claim relief, even if no tax is due

Your relief claim will mean that SDLT is calculated at 0% for £425,000 of the purchase price and 5% on the remainder up to £625,000. If the purchase price is more than £625,000 the relief cannot be claimed and the standard rates on the total purchase price will apply. In the SDLT return, the enter relief code for this is “32”.

For example:

If you’re buying a new home for the price of £400,000, the Stamp Duty you will pay is £0.
If your new home costs £525,000, your stamp duty will be £5,000 – £0 for the first £425,000 and 5% of the £100,000 leftover
If your new home is £650,000, your stamp duty will be calculated at the usual rate (more info here)

You can find more information on rates here on the HMRC website.

For the purpose of first-time buyer relief in paragraph 8 of Schedule 6ZA of the Finance Act 2003, major interest in dwelling is either a freehold interest, or a leasehold interest which has more than 21 years to run at the beginning of the day after the effective date of the transaction.

Stamp Duty for Mixed-Use (Residential & Non-Residential) Properties

If a transaction includes both residential property and non-residential property such as a shop with a flat above, the purchase will be classed as mixed use, which therefore will not be applied to the first-time buyer relief.

SLDT for Shared Ownership

Buyers who are the first owners of shared ownership properties can claim relief on purchases regardless of whether they make a market value election or choose to pay SDLT in stages.

Overseas buyers

If at any point of the purchase, the individual is defined as a resident outside the UK, they must pay a SDLT surcharge of 2%. This is also payable in addition to any other surcharges or higher rates that may apply. For the purpose of SDLT, if an individual has been in the UK for at least 183 days continuously through a period of 365 days within the two-year window from the start of the 364 days before a purchase and ending 365 days after it, they are to still be treated as a UK resident. If the individual subsequently satisfies the test to become a UK resident, they can within two years of the Purchase reclaim the surcharge. The refund is claimed by amending the SDLT return, which can be done within two years after the effective date of the transaction once the residence rule is satisfied.

Who is classed as an ‘overseas buyer’ when couples are buying together?

If any buyer is a non-UK resident in relation to the transaction, then none of the buyers are UK-resident in relation to the transaction. This means that if your partner is classed as a non-UK resident, the overseas buyers policy will apply to both of you.

However, if you are married or in a civil partnership and are buying the property together, if one is a UK resident in relation to the transaction then you are both treated as UK residents in relation to the transaction. As long as the buyer spends the required 183 days in the UK and two years of UK residency for SDLT, the higher rates on the dwellings will not apply. Otherwise, a first-time non-UK resident buyer will be expected to pay a bigger deposit.

If you’re a first-time buyer, you can get in touch with our conveyancing solicitors team who will be happy to assist with your exciting new purchase.

Conveyancing Process

Unmasking Property Fraud, Mortgage Fraud and Payment Diversion Fraud.

First Home Scheme: HMRC discount scheme for first time buyers