Guide to Stamp Duty for First Time Buyers

Introduction

Stamp duty is a tax charged on property transactions including freehold, leasehold, residential and commercial properties. As a prospective buyer you are obliged to pay a stamp duty on the purchase of the property. Even in the cases where there is no Stamp duty is payable your solicitor must obtain a certificate for such relief from the HMRC within 30 days of completion of your purchase transaction and submit it to Land Registry for registration of title in your name.

Read Time 5 Minutes

Proposed changes

From 1 March 2019 the time period of 30 days will be reduced 14 days to pay the stamp duty and obtain a certificate. Any delay in paying a stamp duty may result in prosecution, fines and penalties and you and your solicitors may have to pay.

Completion date

Often the completion date is deemed as the effective date of the transaction. Where a buyer fails to pay the stamp duty within 30 days’ time period. It is important that as a buyer you must ensure the provision of the funds for stamp duty. Failure to pay the stamp duty will also delay the registration and transfer of the title with the land registry as well.

Residential freehold properties

In case of residential freehold property, you do not pay any stamp duty if the value of the property is less than £125,000 and then on an increasing proportion of the value of the property which is above £125,000. The following bands are currently applicable to the purchase of freehold properties.

 

Bands

                    Applicable Rate

A. £0 – £125,000

 

 0% /No Stamp duty

B. Next £125,000

                        (From £125,001 – to £250,000)

2%

C.  Next £675,00

                        (From £250,001 –  to £925,000)

5 %  

D. Next £575,000

   (From £925,001 – to £1,500, 000

10%

E. Any amount /value above £1,500,001

 12%

 

Example

If you have purchased a property for £275,000, you must pay stamp duty of £3,750. The calculation is based on the above-mentioned rates. On first £125,000 there is no tax. On next £125,000 it will be 2% and remaining £25,000 it will be 5%.

1 First 125,000 × 0% = £0.00

2 Next 125,000 × 2% = £2,500

3 Remaining £25,000 × 5% = £1,250

Total Value = £275,000 Stamp duty (£0 + £2,500 + £1,250 = £3,750)

Non-Residential and Mixed Used Properties

If you are buying a non-residential and mixed-use property you do not pay any Stamp Duty if the value of the property is less than £150.000. For properties valued over £150,000 following bands will apply

Value of the Non-Residential and Mixed Property (Freehold)

                    Applicable Rate

A. £0 – £150,000

 0% No Stamp duty

B. £150,001 – £250,000

2% on £100,000 (B £250,000 – A 150,000)

C. £250,001 and above

 5 % of the amount above £250,001

Subsequent Properties/ Second Homes

From 1 April 2016, any purchase of additional residential property (Second or subsequent properties) will incur an extra 3% stamp duty on top of normal stamp duty rates.

Example

2nd and subsequent properties

Bands

                    Applicable Rate

A. £0 – £125,000

 

 0% /No Stamp duty + extra 3% = 3%

B. Next £125,000

                        (From £125,001 – to £250,000)

2% + extra 3% = 5%

C.  Next £675,00

                        (From £250,001 –  to £925,000)

5 % + extra 3% = 8%

D. Next £575,000

   (From £925,001 – to £1,500, 000

10% + extra 3% = 3%

E. Any amount /value above £1,500,001

 12% + extra 3% = 15%

First Time Buyer’s Relief

As a first-time buyer and provided the value of your first home is less than £500,000, you can claim a relief on first £300,000 of the value of your property. Which means that you do not have to any stamp duty on first £300,00. However, you have to pay a 5% stamp duty on any value which is above £300,000 and up to £500,000.

Example

  • Value of the property = £275,00. Stamp duty payable = 0 (as first 300,000 are exempt)
  • Value of the property = £500,000. Stamp duty payable = [(£300,000 × 0% = 0.00) +( £200,00 × 5% = £10,000)]= Total payable is £10,000.

If you are affected by the issues raised in this article, you can seek reliable legal advice from Legalally’s experienced property lawyers Instantly via mobile, tablet and laptop.

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