Buying a newly built home offers many advantages, from modern amenities to energy efficiency. However, one common question is how Stamp Duty Land Tax (SDLT) applies to new builds compared to pre-owned properties. While the fundamental rules remain the same, there are some unique aspects to consider when calculating stamp duty for a new build. This guide will walk you through the key differences, exemptions, and important tips to keep in mind when purchasing a newly built property in 2024.
What is Stamp Duty?
Stamp Duty Land Tax is a tax levied on property purchases in England and Northern Ireland. Whether you’re buying a new build or an existing property, you will typically need to pay stamp duty based on the purchase price. The rates are tiered, meaning different portions of the property’s value are taxed at different rates.
Standard SDLT Rates for 2024
For residential properties, the standard SDLT rates in 2024 are:
- Up to £250,000 – 0%
- £250,001 to £925,000 – 5%
- £925,001 to £1.5 million – 10%
- Above £1.5 million – 12%
These rates apply whether you’re purchasing a new build or an existing home. However, there are a few factors specific to new builds that may influence how and when stamp duty is paid.
Key Considerations for New Builds
1. When is Stamp Duty Payable on a New Build?
For newly built homes, stamp duty is payable upon completion of the purchase, not at the exchange of contracts. This is important for buyers purchasing off-plan properties, where there may be a significant delay between when you exchange contracts and when the property is completed.
For example, if you exchange contracts on a new build that’s still under construction, your stamp duty payment will be due once the property is complete and you officially take ownership.
2. Stamp Duty on Off-Plan Purchases
When buying a property off-plan, the price you agree on is typically the price used to calculate stamp duty. This means that even if the market value increases by the time the property is completed, you will only pay stamp duty based on the agreed-upon price at the time of contract exchange.
This can be beneficial if property values rise, as you lock in your stamp duty liability based on the original purchase price, potentially saving you money compared to buying the property after it has been built.
3. First-Time Buyer Relief for New Builds
If you’re a first-time buyer purchasing a newly built home, you can still benefit from First-Time Buyer Stamp Duty Relief. This relief applies to properties valued up to £625,000, with no stamp duty on the first £425,000.
For example:
- If your new build home costs £400,000, you won’t pay any stamp duty.
- If your home costs £500,000, you’ll pay 5% stamp duty on the portion above £425,000, which in this case is £75,000. That results in a stamp duty bill of £3,750.
First-time buyers should ensure they meet the eligibility criteria, including having never owned a property before, either in the UK or abroad.
4. Help to Buy and Stamp Duty
While the Help to Buy scheme is no longer available for new applications as of 2023, many buyers who purchased new builds using the scheme may still be in the process of staircasing (increasing their ownership share). Each time you staircase to own a larger percentage of the property, you may need to pay additional stamp duty if your total ownership exceeds 80%.
It’s important to calculate potential stamp duty liabilities if you’re in the process of staircasing on a new build purchased through Help to Buy or a similar scheme.
Stamp Duty Surcharges for Second Homes and Investors
If you’re purchasing a new build as a second home or a buy-to-let investment, you’ll need to factor in the 3% surcharge on top of the standard stamp duty rates. This surcharge applies regardless of whether the property is new or pre-owned.
For example, if you’re buying a new build for £500,000 as a second home, the stamp duty would be:
- 0% on the first £250,000
- 8% on the next £250,000 (standard rate of 5% + 3% surcharge), resulting in £20,000 in stamp duty.
Exemptions and Special Cases for New Builds
While the rules for stamp duty on new builds are generally the same as for existing properties, there are a few exemptions and special considerations:
- Zero-Carbon Homes: Although not currently in effect, there have been previous stamp duty exemptions for zero-carbon homes. Keep an eye on potential government initiatives that may offer future relief for eco-friendly properties.
- Stamp Duty Refunds: If you’re purchasing a new build as a second home but plan to sell your main residence within three years, you may be eligible for a refund of the 3% surcharge once your primary residence is sold.
Stamp duty for newly built homes follows the same basic rules as existing properties, but there are some key nuances to consider, especially for first-time buyers, off-plan purchases, and investors. By understanding the process and planning for the appropriate stamp duty costs, you can better manage your budget and avoid unexpected surprises when buying your new home.
