Stamp Duty Land Tax Budget Cut: What Does This Mean For First-Time Buyers?

Publish date: 2024-01-16

It's just under a year since the Stamp Duty Land Tax cut was announced on 23 September 2022, and over the past 11 months the move has helped many first-time buyers to get on the property ladder. The initiative will remain in place until March 2025, as Chancellor of the Exchequer Jeremy Hunt announced in November last year, so if buying a property is something you're hoping to do with the next year and a half, it pays (literally) to be aware of this tax cut.

Upon its announcement last autumn, the then-Chancellor Kwasi Kwarteng announced the move could help buyers on all levels of the property market, saving the average buyer in England £2,500 in tax on a home purchase and lifting up to 200,000 homebuyers every year out of paying the tax altogether.

If you're reading this and scratching your head, fear not – we've spoken to Rebecca Maeers, Head of Residential Property at national law firm Freeths, and Sophie Campbell-Adams, Director and Solicitor at Britton & Time, in order to learn more about the government policy and how it can benefit you.

"Understanding SDLT is crucial when entering the world of property ownership. By knowing what it
entails and why it's paid, you'll be better equipped to navigate the exciting journey of finding your
dream home," says Campbell-Adams.

What is stamp duty?

OK, so first thing's first: what exactly is this tax? According to Maeers, “Stamp Duty Land Tax [often shortened to SDLT] is a tax payable if you buy a property (or land) over a certain price in England and Northern Ireland. The price at which the tax becomes payable is dependent on who is buying the property and their circumstances as different rates apply to first time buyers, individuals, companies and non-UK residents.” This does not apply in Wales and Scotland, where there are different tax regimes in place.

If you're wondering about the name, Campbell-Adams adds some crucial context: "The name "stamp duty" dates back to the days when a physical stamp had to be affixed to the legal documents to indicate that the tax had been paid. SDLT was originally imposed to generate finances for the war against France in 1694. Today it generates revenue for the government, which is then utilised to fund public services, infrastructure projects, and more."

So how much is SDLT? It's “calculated based on the property's purchase price and must be paid by the buyer,” explains Campbell-Adams. According to the government website, that tax is generally calculated as a percentage of your property value (starting at 5%), and the percentage you pay is dependent on what price band your total property value falls into. There's an online SDLT calculator that helps you to work this out.

However, Campbell-Adam adds that the amount might be affected by a variety of factors, including:

The property's value
Whether you're a first-time buyer
Whether you are purchasing residential or commercial property
How many properties you own

Before the SDLT cut, the threshold for buyers of residential properties was £125,000 – and this applied whether or not you were a first-time buyer. However, the cuts mean that this threshold is now different for first-time buyers, which we'll go on to explore the ramifications of.

When the cut was first announced on September 23 2022, Kwarteng said: “Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots," adding later “We want better living standards for everyone.”

HM Treasury, the government's economic and finance ministry, also tweeted at the time: "We're cutting Stamp Duty Land Tax which will help more people to move, promote residential investment and boost first-time ownership. All alongside our housing supply reforms in today's Growth Plan."

Do I have to pay stamp duty?

So, will you be among the 200,000 homebuyers helped by this scheme annually? Yes – if you're a first-time buyer purchasing a property that's valued at less than £625,000, and the sale takes place before March 2025. As Maeers explains, “First time buyers can claim a discount on the tax payable on the purchase of a property providing that the purchase price is less than £625,000. All buyers of the property need to be eligible to claim the relief for it to apply.”

If the property is below £425,000, you'll pay zero stamp duty on your property. If your property is between £425,001 and £625,000, you'll pay 5% on that portion of the property price that's above the £425,000 threshold. For instance, if your property is £500,000, you'll pay a stamp duty tax of 5% of the £75,000: a stamp duty tax of £3,750.

How do I pay stamp duty?

Stamp duty is paid directly to HMRC online or through the post, and must be done within 14 days of completing your property purchase – otherwise, you'll be charged interest.

So what does this mean for those hoping to get on the property ladder?

“For aspiring homeowners taking their first steps, [the SDLT cut] represents a significant advancement and could potentially make the journey onto the property ladder slightly more attainable,” says Campbell-Adams.

According to Kwarteng's announcement, the nil rate band for the average buyer will be doubled from £125,000 to £250,000. This means that an average of 200,000 more people can buy a home annually without paying any Stamp Duty.

Going even further to support first-time buyers, they will not be required to pay stamp duty on properties up to £425,000. The property value on which first-time buyers can claim relief will also be increased from £500,000 to £625,000. Previously, first-time buyers had a nil-rate band of £300,000, provided their property value did not exceed £500,000.

According to property website Rightmove, these new changes, which took effect from midnight Friday 23 September 2022, mean that a third of all homes currently for sale in England are now exempt from stamp duty.

These new rates provide a fresh incentive for first-time buyers, especially in London and the South East, where previously soaring home costs meant they faced colossal tax bills. Now, of the 200,000 buyers each year who will no longer have to pay stamp duty, 60,000 will be first-time buyers.

Use the Government website's stamp duty calculator tool to determine how much you may have to pay.

Are there other taxes that first-time buyers need to be aware of?

“When it comes to purchasing land, the main tax a buyer needs to consider is SDLT,” notes Campbell-Adams. However, there are other considerations: “it's important to note that there might be additional taxes depending on how you obtain the funds for the purchase. For instance, if you sell assets, receive a gift, or make an investment, you could be subject to taxes like capital gains tax. There may also be tax implications for those assisting you with the purchase.”

Still confused? It might be best to seek help if you're struggling to navigate these financial situations for the first time. “If you're unsure about your tax situation, we highly recommend seeking guidance from tax specialists who can provide tailored advice for your circumstances. Your financial well-being matters, and expert advice can ensure you make informed decisions.”