Everything That First Time Buyers Need to Know About Stamp Duty

If you are buying a home in the UK, and the purchase price that you agree with the seller exceeds £125,000, you will be required to pay a cost known as ‘stamp duty’.

This will be a certain percentage of the value of your property, and will need to be factored into the costs of buying your first home, as it is required to be paid soon after your purchase is complete.

For a couple of years, first time buyers were exempt from paying stamp duty on homes costing less than £250,000. However, since 2012 this exemption no longer applies, so it’s important to understand the rules around stamp duty if you are in the process of buying your first home.

What is stamp duty, and what does it pay for?

Stamp duty land tax is a payment to the Government, in order to obtain a Certificate of Land Ownership from the HM Revenue & Customs, which states that the land on which your new property sits is legally and officially owned by and registered to you. If you are liable to pay stamp duty but don’t pay it, you won’t be allowed to officially purchase your new home. So you should discuss with your solicitor whether you will need to pay stamp duty, and how much it will be, so you can ensure that you don’t miss the payment deadline – which we will explain below.

How much stamp duty will I need to pay?

Stamp duty must be paid on all homes that are purchased for over £125,000. The amount of stamp duty that you will pay will depend on the price you are paying for your home, as the rates increase after certain thresholds.

At the time of writing this blog post (June 2017), the below stamp duty thresholds and rates apply to the purchase of residential properties and land in England, Wales and Northern Ireland. In Scotland, you would pay Landing and Buildings Transaction Tax (LBTT) instead of stamp duty.

Purchase Price

Stamp Duty Rate

Up to £125,000 0%
The next £125,000 (the portion from £125,001 - £250,000) 2%
The next £675,000 (the portion from £250,001 - £925,000) 5%
The next £575,000 (the portion from £925,001 - £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
   

Example:

If you buy a house for £275,000, the Stamp Duty Land Tax you owe is calculated as follows:

  • 0% on the first £125,000 = £0

  • 2% on the next £125,000 = £2,500

  • 5% on the final £25,000 = £1,250

  • Total Stamp Duty Land Tax owed = £3,750 

When does stamp duty need to be paid, and how do I pay it?

You must pay your stamp duty within 30 days from the date of completion of the purchase of your first home – when the contracts are signed and dated, and you have your keys. Your solicitor will typically arrange the payment of stamp duty for you, often before your purchase is completed, however it’s your legal responsibility to ensure that your stamp duty is paid. If your stamp duty isn’t paid within the required 30 days, you may be fined and even charged interest on the outstanding cost, so it’s really important not to leave it until the last minute!

What are the rules around stamp duty on new builds?

If the property you are buying is a new build, stamp duty will be payable on the price you are paying for your new home (if it exceeds £125,000), which will include fixtures and fittings that are ‘attached’ to the building – for example, kitchens and fitted wardrobes. You may find that many housebuilders offer incentives to buyers which can help to cover the cost of stamp duty.

Can I add stamp duty to my mortgage?

It’s not possible to add the cost of stamp duty to your first time buyer mortgage. If the value of the property you want to buy exceeds £250,000, you’ll need to factor in the cost of stamp duty along with how much you have for a deposit, and how much you want to borrow for your mortgage.

Your solicitor will be able to answer any further questions that you have about stamp duty, and if you’d like to discuss your options for first time buyer mortgages with Newcastle Building Society, one of our qualified mortgage advisers would be pleased to speak with you. Call us now on 0345 606 4488, or book an appointment at your local branch now.

 

 

Your mortgage will be secured on your home. Your home may be repossessed if you do not keep up repayments on your mortgage.