Purchasing an additional residential property or acquiring a second home involves significant financial considerations, one of the most important being Stamp Duty Land Tax (SDLT). This guide aims to provide a comprehensive overview of everything you need to know about stamp duty for second homes, ensuring you are well-prepared and informed before making your next property investment.
Understanding Stamp Duty
Stamp Duty Land Tax (SDLT) is a tax imposed by the government on property purchases in England and Northern Ireland. This tax applies to both freehold and leasehold properties, whether you are buying outright or with a mortgage. For second homes, an additional surcharge is applied, which can significantly increase the overall cost of the property.
What Counts as a Second Home?
The concept of a second home can be ambiguous, so it’s crucial to understand what qualifies. A second home refers to any additional property you acquire beyond your primary residence. This can include:
- Buy-to-let properties: Properties purchased for rental income.
- Holiday homes: Properties used for vacations or leisure.
- Properties purchased as family gifts: Homes bought for family members.
Understanding these distinctions helps ensure you are fully aware of your obligations when acquiring a second home.
Stamp Duty Rates for Second Homes
Stamp duty rates vary depending on the location of your property purchase. It’s important to note that different rates apply in England and Northern Ireland, Wales, and Scotland, and non-UK residents face additional surcharges.
England and Northern Ireland
For second homes, the stamp duty rates are:
| PURCHASE PRICE OF PROPERTY | STAMP DUTY RATE | STAMP DUTY RATE FOR ADDITIONAL PROPERTIES |
| Up to £250,000 | 0% | 3% |
| £250,001 to £925,000 | 5% | 8% |
| £925,001 to £1.5 million | 10% | 13% |
| Over £1.5 million | 12% | 15% |
Scotland
In Scotland, the Land and Buildings Transaction Tax (LBTT) rates for second homes are:
| PURCHASE PRICE OF PROPERTY | STAMP DUTY RATE | STAMP DUTY RATE FOR ADDITIONAL PROPERTIES |
| Up to £145,000 | 0% | 4% |
| £145,001 to £250,000 | 2% | 6% |
| £250,001 to £325,000 | 5% | 9% |
| £325,000 to £750,000 | 10% | 14% |
| Over £750,000 | 12% | 16% |
Wales
In Wales, the Land Transaction Tax (LTT) rates for second homes are:
| PURCHASE PRICE OF PROPERTY | STAMP DUTY RATE | STAMP DUTY RATE FOR ADDITIONAL PROPERTIES |
| Up to £180,000 | 0% | 4% |
| £180,001 up to £250,000 | 3.5% | 7.5% |
| £250,001 to £400,000 | 5% | 9% |
| £400,001 to £750,000 | 7.5% | 11.5% |
| £750,001 to £1.5m | 10% | 14% |
| Over £1.5m | 12% | 16% |
Additionally, non-UK residents are subject to a 2% surcharge on top of these rates, effective from April 1, 2021.
Inheriting a Second Property and Stamp Duty Implications
Inheritance can complicate stamp duty obligations. If you inherit a property, you may still face the additional stamp duty when purchasing another home.
Sole Ownership through Inheritance
If you inherit a property and become its sole owner, the additional stamp duty applies when buying another property.
Shared Inheritance
If you inherit a share of a property (50% or less) and purchase a new home within three years, you might be exempt from the additional 3% stamp duty. It’s crucial to understand these rules and seek professional guidance to navigate your specific circumstances.
Claiming Back Stamp Duty on a Second Home
There are scenarios where you can claim a refund on the additional stamp duty paid for a second home. If you sell your previous main home within three years of purchasing a new one, you can apply for a refund of the higher rate paid.
Common Scenario
If you buy a new home before selling your old one, resulting in the ownership of two properties, you initially pay the higher stamp duty rate. Once you sell your original home and the new property becomes your main residence, you can claim a refund on the additional rate within three years of the purchase.
Exemptions from Stamp Duty for Second Homes
While second home purchases generally incur higher stamp duty rates, some exemptions exist:
- Properties valued below £40,000: No stamp duty is applied.
- Caravans, mobile homes, and houseboats: Exempt regardless of the price.
- Replacement of main residence: If you buy a new main home and sell your old one simultaneously, you are exempt from the additional rate.
Stamp Duty for First-Time Buyers
If you are a first-time buyer purchasing a buy-to-let property, standard stamp duty rates apply, as long as you own only one property. However, first-time buyer relief does not apply to buy-to-let properties.
Liabilities
You are liable for the second home rates if:
- You have a shared ownership in another property.
- You have inherited a property.
- You purchase jointly with someone who already owns property.
Living in the Property You’re Buying
Replacing Your Main Residence
If the new property will replace your main residence, you are exempt from the additional stamp duty rate, provided the sale of your old main residence happens simultaneously.
Delayed Sale
If there’s a delay between purchasing your new main residence and selling your old one, you will initially pay the higher stamp duty rate. You may claim a refund if you sell your old home within three years.
Main Residence Determination
HMRC has specific criteria to determine your main residence:
- Family time: Where the family spends the majority of their time.
- Children’s education: The location of their school.
- Official registrations: Where you are registered to vote and for healthcare.
Understanding how HMRC determines your main residence is crucial for compliance.
Owning Property Abroad
Owning property abroad doesn’t exempt you from the additional stamp duty on a second home in the UK. This includes holiday homes or timeshares overseas.
Stamp Duty for Spouses and Civil Partners
HMRC treats married couples or civil partners as a single entity. If one partner owns a buy-to-let property and the other buys another property, the additional stamp duty rate applies. This can impact financial decisions, particularly in cases of separation.
Buying Property for Children
If your name is on the deeds and you own another property, the 3% additional stamp duty applies. To avoid this:
- Gift a deposit: Avoids additional stamp duty if not a joint owner.
- Act as a guarantor: Guarantors aren’t considered property owners.
- Family offset mortgage: Your savings act as a deposit without transferring ownership.
Leasehold Extensions and Stamp Duty
Stamp duty applies to lease extensions, but the threshold is typically £125,000. However, the second home rate starts at £40,000. If the lease extension is for your main residence, you are exempt from the additional rate.
Understanding and navigating stamp duty obligations for second homes can be complex. It’s advisable to seek professional advice to ensure compliance and make informed decisions. For personalized guidance, consult a mortgage adviser or legal professional.
Author:
Founder and mortgage and protection adviser in Albion Financial Advice
Dariusz Karpowicz is a seasoned adviser in the financial services industry. After gaining valuable experience working with an established broker, he founded his own practice, Albion Financial Advice. This firm is dedicated to assisting clients in acquiring properties and advising on various mortgage options. Born and raised in Gdańsk, Poland, Dariusz moved to the United Kingdom in 2006.
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