If you’ve ever bought a property in the UK, you’ll know about Stamp Duty Land Tax (SDLT). But what about stamp duty on a second home? How is SDLT affected when you have multiple properties? Our quick reference guide will bring you up to speed.
Stamp Duty rules on second homes: The basics
If you’re buying a second residential property – i.e.: you already have a main residence – then you’ll have to pay a higher rate of SDLT. Usually, you’ll pay the regular stamp duty rate, but with 3% on top of that.
How much stamp duty will I pay on a second property?
You can use a stamp duty calculator to find out exactly how much stamp duty you will pay on a second home. Simply make the basic calculation based on the value of the property you want to buy, then add 3% of the value of the property itself.
Stamp Duty on second home calculation: A quick example
Let’s say you have a main home, and you want to buy a second residential property worth £500,000. The basic stamp duty charge would be £12,500 (under the new rates, see below). To this figure, you would add another £15,000 – 3% of the £500,000 value of the property.
In total, your full stamp duty on the second home would be £27,500.
Why do I have to pay more Stamp duty on my second home?
The extra 3% was added as a second home tax back in April 2016. This move was made by the government in response to the growing housing shortage crisis. Their thinking was that discouraging the buying of second homes would free up more properties.
According to BBC News, stamp duty brings in around £12 billion annually. The Government claims that much of this is reinvested in building affordable housing.
Is the Stamp Duty Holiday still going?
The stamp duty holiday, introduced at the height of the pandemic, ended in September 2021. On 1st October, the ‘tapered off’ stamp duty exemption on purchases up to £250,000 ended. However, the ‘mini-budget’ of October 2022 introduced a more permanent change in stamp duty rates (see update below).
How do I avoid stamp duty on a second home?
There are a couple of ways to avoid paying the extra 3% second home tax. The main one is to sell your first home. If you sell your first residential property before buying the second, this extra 3% SDLT doesn’t apply.
If you buy your second home before selling the first, you’ll have to pay the extra 3%, but you can reclaim it later. Provided that you sell the first home within 36 months of purchasing the second, you can apply for a full refund of the additional 3% stamp duty paid.
Other ways to avoid this higher second home tax include:
Putting the deed and mortgage of the second property in the name of a family member. You have to intend to use the property as a home for them.Buy a property worth £40,000 or less – all properties of this price are fully exempt from SDLT.Buy a motorhome, caravan or houseboat – All these forms of property are also exempt from SDLT, no matter how much they cost.
Can I add stamp duty to my mortgage?
You can tack the cost of your stamp duty onto a mortgage agreement. This will simply result in a higher mortgage. While this will cover the cost initially, be careful that it doesn’t push up your loan-to-value (LTV) ratio too much.
What are the stamp duty rates 2022? (27th October Update)
At the time of writing, the new stamp duty rates introduced by previous Chancellor Kwasi Kwarteng will be staying. This means that the 0% SDLT threshold is staying at £250,000, up from £125,000.
The complete bands for stamp duty rates in October 2022 are:
Up to £250,000 – 0%
Between £250,001 and £925,000 – 5%
Between £925,001 and £1.5 million – 10%
Over £1.5 million – 12%
Remeber: If you are buying a second home, the 3%
Hopefully, this quick reference guide has given you the right knowledge to factor into your purchasing decision. If you need more information on stamp duty refunds, or other SDLT rules, consult our dedicated guides below.
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