The property market can seem like an incredibly daunting place for many first-time buyers. Even when they’ve finally found the perfect property, the sheer amount of red tape involved with buying a home can sometimes seem completely overwhelming. From arranging a homebuyer survey to signing all manner of legal paperwork, inexperienced buyers can quickly become confused by the entire process.
If you’re a first-time buyer currently hoping to take your first steps on the property ladder, you’ll undoubtedly have some burning questions. After all, the last thing you want is to agree on a price for a property, but then fail to take any additional costs into account and ultimately end up over your budget.
Before even thinking about investing in property development, you need to develop a thorough understanding of the legalities and tax costs involved with buying a home. Of course, this means you’ll have to learn all about stamp duty and how it could affect you, which is why we’ve put together a quick beginner’s guide to help get you started:
What is Stamp Duty?
Stamp duty is the amount of tax you pay to the government when buying a home. Whether you’re taking out a mortgage or buying the property outright, the amount of stamp duty you pay will be largely dependent on the value of the home in question. So, the more expensive the property, the more stamp duty you’ll have to pay. If you’re selling your home, then you don’t need to worry about stamp duty, as this tax only applies to those who are buying.
Current Stamp Duty Law
There have been significant changes to stamp duty in the past few years, with reforms introduced back in December 2014. While stamp duty still applies to all properties bought for more than £125,000, the new rules mean that buyers no longer have to pay tax on the full price of the property. Instead, homebuyers will pay nothing on the first £125,000, and will only have to pay stamp duty on the remaining amount.
For example, if you were buying a home for £200,000, then you would be stamp duty at a rate of 2% on the remaining £75,000. These rates will fluctuate depending on the overall price of the property: homes up to £250,000 are charged 2%, while those between £250,001-£925,000 will pay 5%. Anything over that, and you’ll be paying at least 10% stamp duty.
According to the government, these changes mean that 98% of buyers will now pay less stamp duty, creating a fairer market and making homes more affordable. If you’re buying a home for under £125,000, then the law remains exactly the same: you don’t have to pay stamp duty at all.
However, things work slightly differently if you’re buying a home in Scotland or Wales. As of April 2015, buyers in Scotland have to pay Land and Buildings Transaction Tax (LBTT) instead of stamp duty, while those in Wales will pay Land Transaction Tax (LTT). LBTT applies to properties costing over £145,000; LTT applies to those costing more than £180,000.
How Stamp Duty Affects First-Time Buyers
Although the majority of buyers will have to pay stamp duty on anything over £125,000, the 2017 Autumn Budget introduced new rules for first-time buyers. Following the changes, if you’re buying a property for the first time, you don’t have to pay stamp duty on any properties costing more than £300,000, although you’ll have to pay the standard 5% on anything between £300,000-£500,000. If the property costs more than £500,000 then you won’t qualify for first-time buyer stamp duty relief.
Arriving just a year after the hugely successful Help to Buy scheme, the government has placed a real emphasis on helping new buyers take their first steps onto the property ladder. While the equity loan and ISA schemes have undoubtedly helped buyers save for a deposit, these tax cuts have certainly played a huge role in the current surge of first-time buyers. In fact, the number of new buyers is at a 12-year high, with UK Finance reporting well over 370,000 people bought their first home in 2018; marking an increase of almost 2% from the previous year.
Since the uncertainty surrounding Brexit is causing house prices to stagnate, this is undoubtedly a very exciting time for first-time buyers. According to the latest figures from HMRC, the changes to stamp duty have helped more than 141,000 new buyers get onto the ladder since they were introduced, saving an estimated total of £426 million.
How Do You Pay Stamp Duty?
In most circumstances, stamp duty will be paid to your solicitor as part of the purchase procedure, and they’ll then process this payment with HMRC. Either way, this payment needs to be paid in full within 14 days of buying the home (which has been reduced from 30 days since March 2019), and it isn’t possible to add stamp duty costs to your mortgage.
Ultimately, this is why the tax relief has proved so beneficial to first-time buyers, since coming up with this additional lump sum would often become a real stumbling block.
Whether you’re a first-time buyer or not, Blackmore Homes currently have a series of exciting property developments on the market. Browse our selection today to take your first steps towards the property ladder, or contact a member of our team to find out more!