UK homeowners and first-time buyers are due to be hit by a significant increase in Stamp Duty (SDLT - Stamp Duty Land Tax) as of April. The original announcement came during the October budget of 2024, when Chancellor Rachel Reeves confirmed that Stamp Duty relief would end in April 2025.
Since 2021, stamp duty has been payable by homeowners who purchased properties valued at £250,000 or above. However, from April, all properties valued at £125,000 or more will be liable for stamp duty on purchase.
Even the threshold for first-time buyer stamp duty will fall as part of the changes in April. Since Covid, the tax-free allowance threshold for those buying their first property stood at £425,000. From April 2025, this will be reduced to £300,000.
Many lenders expect to see a flurry of buyers finalise their deals quickly throughout March, to avoid higher stamp duty charges from April 1st.
How will these changes impact the average buyer?
These examples show how the reduction in stamp duty threshold will impact the average first-time buyer and home movers.
SDLT for the average residential buyer on a home worth £295,000 until 31st March 2025 is:
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0% on the first £250,000 = £0
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5% on the final £45,000 = £2,250
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total SDLT = £2,250
From 1 April 2025 the same home worth £295,000 would incur SDLT of:
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0% on the first £125,000 = £0
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2% on the next £125,000 = £2,500
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5% on the final £45,000 = £2,250
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total SDLT = £4,750
First-time buyers will be hit a lot harder, with an increased stamp duty bill of £6250 on a £500,000 home. This is broken down below:
SDLT on a first-time buyer property worth £500,000 until March 31st, 2025 is:
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0% on the first £425,000 = £0
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5% on the remaining £75,000 = £3,750
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total SDLT = £3,750
Then from April 2025 onwards:
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0% on the first £300,000 = £0
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5% on the remaining £200,000 = £10,000
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total SDLT = £10,000
For those in London and the South East, where the average home is currently priced at almost £600,000, this could set home ownership back significantly for many. However, perhaps more surprisingly, the West Midlands is also expected to see a 66% increase in property transactions that are liable for stamp duty charges.
Are higher stamp duty costs avoidable?
Stamp duty charges are applied on property value, so to avoid or reduce stamp duty charges, buyers need to carefully consider the property value of their prospective new home. Property prices are typically higher for those buying in London and the South East, so buying a home in the North of the country to avoid stamp duty is not a new idea.
However, it’s not as straightforward as it once was, with the average first-time buyer in 32% of all local authority areas now expected to be liable for stamp duty, compared with just 8.4% prior to the reduction in thresholds. The sad truth is that looking at cheaper areas of the UK may be the simplest way to avoid substantial stamp duty charges for all buyers, but particularly first-time buyers, from April 2025.
Another option might be to look at auction properties, which generally tend to be priced lower, or to consider shared ownership, where you part-buy, part-rent a home. This means you’re only liable for stamp duty on the element of the property value that you own - which can be between 10-75% at the time of purchase.
