When purchasing an additional residential property or acquiring a second home, it's important to be aware of the additional stamp duty obligations. If the property's value exceeds £40,000, the extra rate for second homes typically applies.
Even if you already own a property abroad or only possess a share in a property, the extra stamp duty still needs to be paid. Stay informed about these regulations when expanding your property portfolio.
What counts as a second home?
The concept of a second home can be ambiguous, so it's crucial to define its qualifications clearly. Essentially, a second home refers to any property you acquire in addition to the one you already own. This can include:
- Buy-to-let properties.
- Holiday homes.
- Properties purchased as family gifts.
Being aware of these distinctions helps ensure a comprehensive understanding of second homes and their implications.
How much is stamp duty for second homes?
Stamp duty rates vary based on the location of your property purchase. Whether you are buying in England & Northern Ireland, Wales, or Scotland, different rates apply. It's important to note that non-UK residents will also incur a 2% surcharge starting from 1st April, 2021.
Specifically, let's explore the stamp duty rates in England and Northern Ireland:
| 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% |
How much is stamp duty in Scotland?
LBTT rates in Scotland:
| 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% |
How much is stamp duty in Wales?
| 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% |
Inheriting a Second Property and Stamp Duty Implications
The amount you inherit plays a role in determining your stamp duty obligations. If you become the sole owner of a property through inheritance, you are subject to the additional stamp duty when purchasing another property.
However, if you inherit a share of a property, you may qualify for an exemption. Legislation states that if you inherit 50% or less of a property and purchase a residential property within three years, you are not required to pay the additional 3% stamp duty. It's important to understand these rules and consult with professionals to navigate your specific circumstances.
Can I claim back my second home Stamp Duty?
When buying a second home, you typically pay a higher rate of Stamp Duty. However, there are circumstances where you can claim a refund. In England and Northern Ireland, if you have sold your previous main home, you can apply for a refund on the additional 3% Stamp Duty paid.
One common scenario is when you purchase a new home before selling your old one, resulting in the ownership of two properties. The original home is considered your main residence, while the new home is treated as an additional property, subject to the higher Stamp Duty rate.
Once you sell your original home and the new property becomes your main residence, it is no longer subject to the higher Stamp Duty rate. You may be eligible to claim a refund within three years of the purchase.
Please note that the rules vary depending on whether your property was sold before or after 28th October 2018. To learn more about second home stamp duty rates, consult our comprehensive guide.
What properties are excluded from the stamp duty for second homes?
While purchasing a second home usually incurs higher stamp duty rates, there are a few cases where you may be exempt:
- Properties valued below £40,000.
- Purchase of caravans, mobile homes, or houseboats, regardless of their price.
- Buying a new home that replaces your current main residence, provided you sell the previous main home at the same time as the new purchase.
In these instances, you may not have to pay the additional stamp duty rate. However, it's important to review the specific criteria and regulations to determine eligibility.
Do I have to pay if I’m a first-time buyer?
If you don't currently own any property and choose to buy a buy-to-let property, you won't be subject to the stamp duty rates for second homes. Instead, normal stamp duty rates will apply since you will only own one property. It's important to note that first-time buyer relief cannot be claimed for buy-to-let properties.
However, you will be liable to pay stamp duty if:
- You have a shared ownership in another property.
- You have inherited a property.
- You are purchasing the property jointly with someone who already owns a property.
In these cases, the stamp duty rates for second homes will apply. It's recommended to review the specific regulations and seek professional advice to ensure compliance with stamp duty obligations.
What if I plan to live in the property I’m buying?
The rules surrounding Stamp Duty can become intricate in certain situations. Here's what you need to know:
- Property Replacement: If the property you're purchasing will replace your main residence, you won't have to pay the additional stamp duty rate. However, to qualify for this exemption, you must sell your original main residence simultaneously.
- Delayed Sale: If there's a time gap between buying your new main residence and selling your previous one, you will likely be subject to the higher rates of Stamp Duty as you will own two properties.
- Potential Refund: Selling your previous main home within three years of purchasing your new home may make you eligible for a refund of the higher tax rate paid during the purchase. To claim the refund, you must sell the previous residence within three years and apply within 12 months of the sale or the filing date of your SDLT tax return, whichever is later.
If you require clarification or assistance, reach out to HMRC at 0300 200 3510. It's advisable to seek professional advice to ensure compliance with Stamp Duty regulations.
What is a main residence?
Unlike other taxes, you don't have the flexibility to choose which property is considered your main residence for stamp duty purposes. Here's how HMRC determines your main residence:
- Family Time: If you are married, HMRC considers where the family spends the majority of their time.
- Children's Education: If you have children, the location of their school is taken into account.
- Official Registrations: HMRC considers where you are registered to vote and where you are registered with a doctor/dentist.
These factors help HMRC determine your main residence when you spend time at multiple properties. It's essential to understand how HMRC defines your main residence to ensure compliance with stamp duty regulations. Seek professional advice for personalised guidance.
What if I own property abroad?
Even if your only other property is located abroad, you are still subject to the 3% additional stamp duty when purchasing a property in the UK. This means that owning a holiday home in Greece or a timeshare in Gran Canaria will result in paying the stamp duty for second homes rate, even if you are buying your first home in the UK. It's important to be aware of this requirement when calculating your stamp duty obligations. Seek professional advice to ensure compliance with stamp duty regulations.
If a property is in my spouse’s name can we avoid the additional stamp duty rate?
When it comes to stamp duty, HMRC treats married couples or civil partners as a single entity. This means that if one partner owns a buy-to-let property and the other partner purchases a property, the second home stamp duty rate will still apply. This arrangement can become costly if the couple separates and one partner needs to purchase another home. It's important to factor in these potential expenses and seek professional advice to navigate the stamp duty implications during such circumstances.
I’m buying a property for my children. Will I have to pay the extra stamp duty?
If your name is going to be on the deeds, and you own another property, then the 3% extra stamp duty applies. But, there are a few ways you can avoid it:
- Gift a deposit – if you aren’t going to be a joint owner then the stamp duty for second homes won’t apply
- Act as a guarantor – Guarantors aren’t classed as owning the property. So, you will avoid the additional rate
- Get a family offset mortgage – This means your put your savings into an account with the mortgage lender. They then act as a deposit, but you retain ownership of the money. Find out more with our guide to helping your child buy a home.
Does the additional rate apply to leasehold extensions?
When it comes to lease extensions, stamp duty applies just like any other property purchase. However, most people won't have to pay it as it falls below the £125,000 threshold for standard stamp duty.
The challenge arises with the stamp duty for second homes rate, which kicks in at a lower threshold of £40,000. If you pay more for the lease extension and own other properties, you'll be subject to the additional stamp duty rate. However, if the lease extension is for your main residence, you are exempt from this additional stamp duty. It's important to understand these rules and their implications when considering a lease extension.
Optimising Your Stamp Duty Obligations for Second Homes
Discover how Tax Natives can help you navigate the complexities of stamp duty when purchasing or selling a second home. Our experienced professionals can provide tailored guidance to ensure you optimise your tax obligations in the UK.
Contact us today for expert assistance in managing your stamp duty concerns when purchasing a second or multiple properties in the UK.