Stamp duty holiday: what it means for first time buyers

On July 8th Rishi Sunak revealed a stamp duty holiday on properties of up to £500,000 effective immediately in England and Northern Ireland. Scotland and Wales followed soon after announcing their equivalent of stamp duty holidays, and waiving stamp duty on purchases up to £250,000 in both countries.

Why? The stamp duty holiday is not only about helping people achieve their goals in terms of home ownership; it’s also about how important the housing market is to the UK economy as a whole. This is what it means for first-time buyers.


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What is stamp duty?

Stamp duty is a tax that is paid when purchasing property. It makes buying property more expensive. It varies slightly across the UK with the devolved governments of Wales and Scotland having their own versions. In England and Northern Ireland buyers pay Stamp Duty Land Tax (SDLT); whereas in Scotland it is Land and Buildings Transaction Tax (LBTT), and in Wales buyers pay Land Transaction Tax (LTT). Therefore the amount of stamp duty you pay to the government depends both on where you are in the UK, and the price of the property. The tax is paid as a lump sum when the sale is completed.


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What is the stamp duty holiday?

For buyers in England and Northern Ireland, a stamp duty holiday was announced in Rishi Sunak’s mini-budget in July 2020. The temporary measure means no stamp duty will be payable on properties of up to £500,000.

Its purpose is to stimulate the UK housing market. The hope is that by giving potential buyers an effective tax break (by reducing the amount of stamp duty payable), they will be encouraged to move home.

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For buyers in Scotland and Wales stamp duty will be waived on purchases up to £250,000 in both countries.


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When does the stamp duty holiday start?

The stamp duty holiday is a temporary measure. For buyers in England and Northern Ireland it came into effect immediately after Rishi Sunak’s statement on 8th July and will run until the end of March 2021. For buyers in Scotland it came into effect on July 15th and will run until the end of March 2021. For buyers in Wales it came into effect on July 27th and will run until the end of March 2021.


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Who is it for?

The stamp duty holiday will benefit both first time buyers, and people looking to move homes. In England and Northern Ireland, raising the threshold that stamp duty is payable to £500,000 means that nearly nine out of 10 transactions will no longer be subject to stamp duty. Those buying second homes or buy-to-let properties will also benefit though they will still have to pay a surcharge compared to ordinary home buyers.

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For buyers in Scotland raising the threshold to £250,000 means 80% of property sales will be exempt from Land and Buildings Transaction Tax. Those buying second homes or buy-to-let properties will also benefit. And similarly for buyers in Wales, around 80% of buyers will not pay Land Transaction Tax. However in Wales people buying second homes or buy-to-let properties are exempt.


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What does it mean for first-time buyers?

Since 2018 first-time buyers in England and Northern Ireland have been exempt from paying stamp duty unless a property costs more than £300,000. Under this measure if you’re paying between £300,000 and £500,000 for your first property, you’d only pay stamp duty on the amount over £300,000. And if your first home costs more than £500,000 you wouldn’t qualify for the exemption and you’d pay the same stamp duty as someone moving house who is already on the property ladder and not a first-time buyer. By reducing the upfront costs of buying a house the government aimed to make it easier for first-time buyers to get on the property ladder.

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For UK governments, the stamp duty holiday is as much about stimulating the UK housing market through the Covid-19 era as helping first-time buyers. That said, the temporary increase in the threshold where stamp duty is payable may help some people save thousands of pounds when buying their first home.

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Because the introduction of the stamp duty holiday may increase the number of listings coming onto the market from sellers wanting to benefit from the tax break themselves in an onward purchase, first-time buyers could benefit from greater supply. And even better, it could speed up the return of 90% and even 95% mortgages.


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What if I’ve already started the buying process?

Because the requirement to pay stamp duty is only triggered when the purchase of the property is completed, if you’ve exchanged prior to the date the stamp duty holiday came into effect in your country but not completed you’ll still benefit from the increased thresholds.


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If I want to take advantage of the stamp duty holiday, what can I do to prepare for buying a house?

Stamp duty holidays across the UK are in effect until March 31st 2021. So if you’re looking to buy a house in the next few months, now is a good time to start the process if you want to benefit. To get ready to buy a house a good place to start is researching what mortgages are available to you and finding out about how the whole process works, as well as making sure your credit score is good.

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Making sure your credit score is good is really important when it comes to buying a house because it can help increase your chances of being accepted for a mortgage. Why? It demonstrates to lenders that you’re responsible with money and therefore it’s safe to lend to you. It can also save you £1000s on your mortgage deal.

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Using the right tool to help you build your credit score can help make it easy. For example using a tool like Loqbox is free and helps you to improve your credit score, while you save. Find out more about Loqbox and how it works here. You may also be interested in checking out our previous blog exploring the four things first-time buyers need to consider when buying a home during Covid-19 here.