Stamp Duty on Second Homes in UK Guide
How much more tax will I pay if I wish to buy a second home? This is a question many people ask when contemplating buying a second property. Well, the tax they are referring to is stamp duty.
Stamp duty is something everyone who buys land in England, Wales or Northern Ireland must pay. It is often referred to as Stamp Duty Land Tax (SDLT). If you buy a property that will be your main residence, you pay Stamp Duty at the basic rate. If you buy an additional property, you pay Stamp Duty at the basic rate plus a 3% surcharge on each band.
In this article, we answer some of the most frequently asked questions about Stamp Duty.
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What stamp duty rates do I pay on a second home?
From April 2016, homeowners buying additional property have paid considerably more in stamp duty. Second homes now attract a 3% surcharge on each stamp duty band with no allowance made on the initial £125,000.
The higher stamp duty rate is applied to any property not used as the owner’s primary residence. In other words, higher rates apply to holiday homes and buy to let properties.
The stamp duty rates for second homes have changed slightly during the temporary stamp duty holiday, which comes to an end on 30th June 2021. The table below shows the stamp duty rates for main residences and second homes up to 30th June 2021.
Stamp Duty Holiday Rates
From 1st July 2021 to 30th September 2021, there is a staggered return to the previous stamp duty rates. From 1st October 2021, rates are due to return to normal.
Normal Stamp Duty Rates
How much is the stamp duty?
The table below compares the stamp duty you would pay on a house or flat purchased as your main residence compared to buying the same property as a second home or buy to let.
Note: These amounts are calculated based on the normal stamp duty rates.
The HMRC’s Stamp Duty Calculator is a useful tool to work out how much tax you’ll need to pay.
What properties are excluded from the stamp duty for second homes?
Some second properties are exempt from stamp duty. This includes the following:
- Properties bought for less than £40,000
- Caravans, mobile homes or houseboats
- If you’re planning on living in your new home but don’t sell your first immediately – in this case, you can claim a refund if you sell your old property within three years.
What if I plan to live in the property I’m buying?
If you purchased a new main residence without selling your previous one, you would have effectively purchased a second home, and you will need to pay the additional stamp duty charge. However, you can reclaim stamp duty on a second home if you sell your original home within three years.
This is useful for people who sometimes struggle to sell their previous residence or those who need to relocate quickly.
How do I reclaim stamp duty on a second home?
The refund must be claimed through the HMRC by completing a form called “Apply for a repayment of the higher rates for additional properties”. The stamp duty refund must be claimed within 12 months of the sale of the previous main residence.
What is a main residence?
If you only live in one home, then that is your main residence. If you spend time at more than one, HMRC will decide which is your main residence based on:
- Where you and your family usually live
- Where your children attend school
- Where you are registered to vote
- Where you are registered with a doctor or dentist
However, the issue of which is your primary residence doesn’t really affect stamp duty. If you buy a second property, you are liable for the surcharge.
What if I own property abroad?
You will still need to pay the 3% additional stamp duty even if the only other property you own is abroad.
If you already own a principal residence in the UK in addition to your home abroad, you won’t be liable for the 3% SDLT surcharge as long as you’re selling your previous main UK residence.
What if I don’t own any additional properties, but the person I’m buying with does?
For stamp duty purposes, all joint purchases are treated as one unit, making it very difficult to avoid paying the stamp duty surcharge on a second home.
Married couples & civil partnerships
Married couples and civil partnerships are treated as one unit. This means that if one person already owns a property, any subsequent residential purchase by either person will be seen as an additional property for both individuals.
Unmarried couples & joint purchasers
For stamp duty purposes, joint purchasers are treated as one unit. This means that if one party already owns a residential property, then the higher rates will be applied.
What if I am getting divorced and buying a new home?
If your marital home has been handed over to your spouse as part of the divorce settlement, you won’t need to pay the charge.
If you remain a joint owner of your marital residence, you will be liable for the second home surcharge. However, you could claim this back if you sell your share of the property within three years.
What if I am buying a property for my children?
Parents who are already homeowners and wish to help their children buy a property will face the second home surcharge if their name is on the deeds of the property.
If parents help with the deposit or act as a guarantor, then the higher stamp duty rates do not apply.
Does the additional rate apply to leasehold extensions?
Stamp duty is payable on lease extensions. However, this doesn’t usually affect leaseholders extending the lease on their main property because the lease extension cost is generally less than £125,000 (the threshold at which you start paying stamp duty).
For leasehold properties owned as a second home or buy-to-let, stamp duty is payable on leasehold extensions that cost £40,000 or more.
Are you buying a second home in Islington or Stoke Newington?
Although the higher duty on second properties appears unfair, it should not discourage people from buying their second property in an area such as Islington or Stoke Newington. Both of these areas have a wide range of properties for sale or rent, and both have much to offer people who want to live close to the heart of London.
There is no shortage of theatres, restaurants, clubs and bars in either area. The excellent transport links in Islington and Stoke Newington mean you are only ever a short distance from the bars and clubs of Shoreditch or the theatres and restaurants of the West End. These transport links make for a quick and easy commute to destinations like the West End or Old Street.
Despite the stamp duty surcharge, Islington and Stoke Newington are ideal locations if you want to buy a second home or an investment property.
For more information on properties for sale in Islington or properties for sale in Stoke Newington, contact us today.