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How can first-time buyers take advantage of the stamp duty tax break?

stamp duty
stamp duty

Would-be first-time buyers who live in areas with expensive property prices will be among the biggest winners of the Government’s stamp duty break.

New rules announced by Chancellor Rishi Sunak mean that all buyers in England and Northern Ireland will pay less stamp duty when they purchase a home. Those buying residential properties worth £500,000 or under have been exempted from the tax entirely.

The changes will apply until March 31 2021 and are intended to rejuvenate the stagnant property market.

Previously, first-time buyers did not have to pay stamp duty when they purchased homes worth up to £300,000, and were offered reduced rates on purchases up to £500,000.

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While most people typically spend less than £500,000 on their first home, those living in expensive areas of the country, such as London and the South East, are often forced to pay above this amount to purchase in their local area.

Stamp duty on residential properties in England and Northern Ireland
Stamp duty on residential properties in England and Northern Ireland

Research by Hamptons International, the estate agent, found that across England 5pc of first-time buyers paid more than £500,000 for their home. In London this figure rises to 13pc and in the South East it is 9pc.

Buyers in these regions stand to benefit most from the stamp duty tax changes. Previously, because their purchase was above £500,000, they would have been ineligible for the first-time buyer relief entirely.

Mr Sunak’s temporary changes now mean that these buyers can benefit from lower taxes, regardless of the purchase price. Under normal circumstances, buying a £550,000 property would incur a £17,500 tax bill. The same buyer will now pay £2,500 if their purchase completes before the end of March – a saving of £15,000.

Stamp Duty Calculator
Stamp Duty Calculator

Additionally, first-time buyers purchasing a home worth between £300,001 and £500,000 will be taken out of tax entirely. Previously, the first £300,000 was exempt from stamp duty, with a rate of 5pc being charged on the value between £300,001 and £500,000.

In London, 53pc of purchased homes fell into this price bracket, according to Hamptons.  Across England as a whole, the figure was 18pc.

However, the tax giveaway will have little benefit to people living in the North, Midlands and South West, as fewer than 1pc of first-time buyers in these areas spent more than £500,000 on their home.

There are also concerns that young families have lost their comparative advantage now that stamp duty tax breaks are being offered to all buyers. First-time buyers with low deposits have been shut out of the market as lenders withdraw mortgages over fears of house price falls, and they now face added competition for the same properties from landlords and overseas investors due to the levelling out of stamp duty.