If you buy a second home, whether a holiday property, buy-to-let investment or main residence, without having sold your previous home, you will be liable for a 3% stamp duty surcharge. The charge was introduced by the government in 2016 in an effort to cool down the buy-to-let property market. The rules apply to almost all home purchases. However, you can reclaim stamp duty on second homes if you sell your original property within three years.
Having helped many customers deal with the issues around stamp duty on UK second homes, here are some of the most common questions we are asked about the tax.
How much stamp duty will I pay on a second home?
The stamp duty surcharge is 3% of the property’s value and applies to all homes costing more than £40,000. It is in addition to the standard stamp duty charge, which varies according to the value of your property – see below…
|PROPERTY VALUE||STANDARD STAMP DUTY CHARGE||TOTAL DUE INCLUDING SURCHARGE|
|£40,000 – £125,000||0%||3%|
|£125,000 – £250,000||2%||5%|
|£250,000 – £925,000||5%||8%|
|£250,000 – £925,000||10%||13%|
With the standard stamp duty charge, you only pay the higher rate for the proportion of your property’s value which falls into that band. The second home surcharge applies to the whole amount.
The stamp duty on a £400,000 second home
if you’re buying a second home worth £400,000 you would pay:
- nothing on the proportion of its value up to £125,000, then
- 2% stamp duty on the proportion from £125,000 to £250,000 and
- 5% on the proportion from £250,000 to £400,000,
- plus, the extra 3% surcharge on the whole amount.
This means your total stamp duty bill would be £22,000 – compared to £10,000 if it was your first home
You can find stamp duty calculators online, including this one from the Homeowners’ Alliance.
Are any properties excluded from the stamp duty for second homes?
Homes costing less than £40,000 are exempt from the charge. Caravans, mobile homes and houseboats are also exempt, whatever their value.
What if I plan to live in the property I’m buying?
Say you’re looking to move but struggling to find a buyer and can afford to buy your dream property before you sell. You could end up owning two homes even though you plan to make the new home your main residence.
Whatever the reason, if you buy a second home you will need to pay the additional stamp duty charge. However, you can reclaim stamp duty on second homes, if you sell your original home within three years.
What is a main residence?
HMRC classes the home where you and your family usually live, and where your children attend school and you are registered to vote and with a GP, as your main residence. However, the issue of which is your main residence doesn’t affect stamp duty in the same way as other taxes such as capital gains tax. If you buy a second property you are liable for the charge, regardless of which is your main residence.
What if I own property abroad?
You will still need to pay the additional 3% stamp duty surcharge if you buy a second home, even if your first property is overseas.
Can I avoid stamp duty on a second home by putting one property in my spouse’s name?
If you are married or in a civil partnership, you are counted as one unit by HMRC. So even if you do not personally own one of the properties, you will need to pay the charge. This does not apply if you live with your partner but are not married.
If I divorce and buy a home to live in, do I have to pay the second home charge?
If, as part of your divorce settlement, a property adjustment order has been made to hand the home over to your spouse, you won’t need to pay the charge.
Otherwise, you will be liable for the second homes surcharge. However, you can claim back stamp duty on a second home if you sell your share of the property within three years.
I’ve inherited property do I have to pay the additional rate?
If you inherit a property, then go on to buy another home, you will need to pay the additional rate. However, if you inherit a share in a property, of 50% or less, and buy another property within three years, you won’t pay the surcharge.
What if I’m buying a property for my children?
If your name is going to be on the deeds of the property, then you will pay the second home surcharge. If, however, you are helping your child to buy, either by giving them the deposit as a gift, acting as a guarantor for their loan or putting savings into a family offset mortgage, you won’t be liable for the charge – as long as the home will be in your child’s name and they don’t already own property.
What if I’m buying with someone who already owns property?
Even if only one of you already owns property, you will be liable for the charge – unless the new property is bought in the name of the non-property owner (and you are not married or in a civil partnership). This could, however, lead to problems later on – if you are in a relationship and decide to separate, for example.
Does the additional rate apply to leasehold extensions?
Yes. All leasehold extensions are subject to stamp duty. As the threshold at which you start to pay is £125,000, few leaseholders are required to pay the duty on their main residence. With second homes, however, the threshold is the much lower figure of £40,000, so more people are required to pay the charge.
Can I claim back stamp duty on a second home?
If you sell your first property within three years of buying a second home, you can claim back the additional 3% stamp duty from HMRC. Visit the gov.uk website to apply for your refund online.
- details of the property that attracted the higher rates of SDLT, including the date of purchase and the stamp duty land tax unique transaction reference number
- details of the previous main residence you’ve sold, including the date of sale, and the name of the buyer
- the amount of tax paid on the property that attracted the higher rate of stamp duty
- the amount of tax you’re asking to be repaid
- the bank account and sort code details of the person to receive the payment.
Find out more
If you are looking to buy property in Wimbledon, we can advise you on the many complex issues involved in the process. Contact us to find out more about our selection of properties.