What the relief is worth
Take somebody buying their first home in England for £420,000. As a first time buyer they pay nothing on the first £300,000 and 5% on the remaining £120,000, which is £6,000. Without the relief the same purchase would cost £11,000, because 2% would apply to the slice from £125,000 to £250,000 and 5% to everything from £250,000 up to £420,000. The relief has saved £5,000.
That £5,000 is the most the relief can ever be worth. At a purchase price of exactly £500,000 a first time buyer pays £10,000 and an ordinary buyer pays £15,000, so the saving is again £5,000. Below £300,000 a first time buyer simply pays nothing.
The £500,000 cliff edge
This is the part that catches people out, and it is worth understanding before you negotiate. Unlike the main rate bands, first time buyer relief is not tapered. At £500,000 you pay £10,000. At £500,001 you lose the relief completely and pay £15,000. One extra pound on the price costs you £5,000 in tax.
If you are negotiating anywhere near that figure, holding the price at £500,000 or below is worth far more than it looks. It is also worth remembering that fixtures and fittings are not part of the chargeable consideration if they are genuinely separate and reasonably valued, although HMRC does look closely at inflated apportionments, so this has to be done honestly.
Who actually counts as a first time buyer
The test is stricter than most people assume. You must never have owned a major interest in a dwelling anywhere in the world. Not just in the United Kingdom, anywhere. You must also intend to occupy the property as your only or main residence, which rules out buying your first property as an investment.
Where two or more people buy together, every single buyer has to meet the test. If you have never owned a home but your partner owned a flat ten years ago, the relief is lost on the whole purchase, not just on their half. Couples in this position sometimes consider buying in the sole name of the first time buyer, but that has consequences for the mortgage, for ownership and for future capital gains, so it is not a decision to take lightly.
The situations that quietly disqualify you
Several things count as having owned a dwelling even though they may not feel like it. Inheriting a share of a property, however small, normally counts. Being given a property by a family member counts. Owning a home abroad counts, including a share of a family home in another country. Having previously owned a property that you never lived in counts, because the test is about ownership and not occupation.
A few things do not count. Holding a lease with less than 21 years left to run is not a major interest. Being a beneficiary of a trust does not always amount to ownership, although the rules here are technical and depend on the type of trust. Renting, however long for, never affects the relief.
Shared ownership purchases
Buying through a shared ownership scheme has its own rules and they are easy to get wrong. You can either pay stamp duty on the share you are buying now, or make a market value election and pay on the full value of the property up front. First time buyer relief is available under either route, but the choice matters. If you elect to pay on the full market value you settle the tax once and never pay again on later staircasing. If you pay only on your initial share, further tax can become due as you buy more of the property.
Where the full market value is above £500,000, making the election destroys your first time buyer relief even though the share you are buying might be well under £300,000. In that situation paying on the initial share is usually the better answer, but it needs working through on the actual numbers.
Scotland and Wales
Scotland does offer a first time buyer relief, but it is much smaller. The nil rate band rises from £145,000 to £175,000, which saves 2% of £30,000, or £600. There is no upper price limit on the Scottish relief, so a first time buyer purchasing an expensive property still gets the £600.
Wales abolished its first time buyer relief when it set its main threshold at £225,000. In practice a Welsh first time buyer buying a modest property is often better off than an English one, because nothing is due at all up to £225,000 regardless of whether you have owned before. Above that level the Welsh rate of 6% bites quickly, so at higher prices an English first time buyer does better.
How to claim it
The relief is claimed on the stamp duty return, which your conveyancer files within 14 days of completion in England and Northern Ireland, or 30 days in Scotland. You do not apply separately and you do not wait for HMRC to agree it. That means the responsibility for claiming it correctly sits with you and your adviser.
If the relief was missed on a purchase you made in the past, it is usually possible to amend the return and recover the overpayment, provided you are inside the time limit. That is normally 12 months from the filing date, although an overpayment relief claim can sometimes stretch to 4 years. It is worth checking any purchase where you suspect the standard rates were applied by default.
Buying your first home?
We check the relief before you complete, look at the price sensitive points around £300,000 and £500,000, and make sure a shared ownership election is the right one. Fixed fee, agreed up front.
Frequently asked questions
What is the stamp duty threshold for first time buyers?
£300,000 in England and Northern Ireland. Nothing is due up to that figure, then 5% applies between £300,001 and £500,000. In Scotland the first time buyer threshold is £175,000. Wales has no separate first time buyer relief.
Do I lose first time buyer relief if I buy with someone who has owned before?
Yes. Every buyer must meet the test. If one of you has previously owned a home anywhere in the world, the relief is lost on the entire purchase.
What happens if the house costs more than £500,000?
The relief is withdrawn completely and ordinary rates apply to the whole price. Buying at £500,001 rather than £500,000 costs an extra £5,000 in stamp duty.
Does inheriting a share of a property stop me being a first time buyer?
Usually yes. Inheriting a major interest in a dwelling counts as having owned one, even if the share was small and even if you never lived there.
Can I claim the relief after completion if it was missed?
Often yes. The return can normally be amended within 12 months of the filing date, and in some cases an overpayment relief claim can be made up to 4 years later.