How To Avoid Stamp Duty On A Second Home
In this article, we discuss ways you can avoid Stamp Duty when buying a second home, and provide broader details on Stamp Duty for second homes. If you are interested in hearing more tips like this, sign up to our mailing list below.
How Can I Avoid Paying Stamp Duty On A Second Home?
In most cases, you will need to pay stamp duty or its equivalent when purchasing a second property. However, there are stamp duty exemptions, but they are often very specific requirements.
Usually, you cannot avoid paying stamp duty when buying property, but there are several ways of getting around it. HMRC has several stamp duty exemptions they abide by, but you may need to do more work to achieve these.
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Purchase A Property Worth Less Than £40,000
If the property you are purchasing to be a second home is valued under £40,000, you do not need to pay stamp duty. This can limit the type of property you are purchasing and is likely more suited to buying land.
The average price of land in the UK is between £8000-£10,000 per square acre. This means you would need to develop properties on the land, driving up additional costs and making it long before you can use your second home.
New property tends to have a higher value, but unless you are willing to wait and have more funds set aside outside of the purchase price, then this is not a cheap way of avoiding SDLT.
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Purchase A Mobile Home
Mobile homes of any kind, such as a caravan or houseboat, do not require paying any stamp duty. If you are looking to use your second property as a holiday home, this can be a great way of avoiding stamp duty on a second home.
If you are looking to use your second home as an investment, such as turning it into a buy-to-let property, this is not the best way to avoid stamp duty. It will be harder to find tenants for a mobile home than it will for other forms of housing.
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Purchase A Second Property To Be Your Main Residence
If you are purchasing a second home to move in there permanently, you will still have to pay stamp duty when making the purchase. However, if you sell your first property and move into your second home full-time within three years, you can claim the money back as a stamp duty refund.
You will need to sell your first property within three years to claim this stamp duty refund. If you are buying a second home to use as a holiday home, as a buy-to-let investment, or for other use, you will still have to pay stamp duty.
If it takes longer than three years to sell your first property, you will need to write to HMRC explaining why it took longer than three years to sell.
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What is a property adjustment order?
In the event of a divorce, you can put a ‘property adjustment order’ in place, which transfers ownership of the property solely to your former spouse. A divorce lawyer can help with this. Once this is in place, you can purchase an additional property without paying stamp duty.
If a ‘property adjustment order’ is not in place, you can claim a refund on your stamp duty after buying a new home the same way you would when buying a new home to be your main residence.
If you are looking to use your second home as an investment, such as turning it into a buy-to-let property, this is not the best way to avoid stamp duty. It will be harder to find tenants for a mobile home than it will for other forms of housing.
Understanding Stamp Duty Land Tax
If you’re fortunate enough to be considering purchasing a second home, you need to be aware of buy to let stamp duty land tax, or SDLT.
This is a tax you pay to the government if you purchase a piece of land, leasehold, or freehold property.
You only pay stamp duty tax if the property is worth over a certain value, which can change depending on where you are in the UK.
This tax gets increasingly higher the more the property is worth and this can become a significant amount of money, so finding ways to avoid stamp duty can help.
If you are investing in buy-to-let properties in the UK, learning how to avoid stamp duty on a second home can be a good way to lower costs when investing.
Property investment can be a costly endeavour, so saving costs where you can is important.
This post will give you information on how much stamp duty you will pay in different parts of the UK, and ways to avoid paying stamp duty on a second home.
How Much Stamp Duty Do I Have To Pay On A Second Home?
Stamp Duty tax rates vary depending on where in the UK your property is, as Scotland and Wales have their own stamp duty land tax brackets.
First-time buyers can often receive discounts or incentives for stamp duty when buying their first property.
If buying a second property, you will normally have to pay additional stamp duty.
Here are some tables to explain how much stamp duty you would need to pay for a single property, as well as the higher rates of stamp duty you would pay for a second property.
England and Northern Ireland Stamp Duty
(per gov.uk as of September 2022) In England and Northern Ireland, you pay stamp duty on increasing portions of the property.
| Property Value | Stamp Duty Rate | Stamp Duty Rate for Second Property |
|---|---|---|
| £0 - £125,000 | 0% | 5% |
| £125,000 - £250,000 | 2% | 7% |
| £250,001 - £925,000 | 5% | 10% |
| £925,001 - £1,500,000 | 10% | 15% |
| £1,500,001 | 12% | 17% |
Wales Stamp Duty Rates
(per gov.wales as of August 2022) In Wales, stamp duty is known as Land Transaction Tax, or LTT. Similar to England and Northern Ireland, you only pay stamp duty in Wales on portions of the property’s value over a certain amount.
Despite working in the same way, the rates of LTT are different from England and Northern Ireland’s stamp duty, meaning you will pay different amounts of tax if you purchase a second property in Wales.
| Property Value | LTT Rate |
|---|---|
| £0 - £225,000 | 0% |
| £225,001 - £400,000 | 6% |
| £400,001 - £750,000 | 8% |
| £750,001 - £1.5 million | 10% |
| Over £1.5 million | 12% |
Purchasers of additional residential properties, including second homes and certain buy-to-let properties, will be subject to the elevated residential rates of Land Transaction Tax (LTT) for properties exceeding £40,000 in value.
| Property Value | LTT Rate |
|---|---|
| £0 - £180,000 | 4% |
| £180,001 - £250,000 | 7.5% |
| £250,001 - £400,000 | 9% |
| £400,001 - £750,000 | 11.5% |
| £750,001 - £1.5 million | 14% |
| Over £1.5 million | 16% |
Scotland Stamp Duty Rates
(per gov.scot as of August 2022) Similar to Wales, Scotland replaced stamp duty with Land and Buildings Transaction Tax in 2015. However, the rates are again different to other areas of the UK. Purchasers of additional residential properties, such as second homes, will incur an additional 4% charge on the total purchase price for properties valued over £40,000. This levy is referred to as the Additional Dwelling Supplement (ADS).
| Property Value | LBTT Rate |
|---|---|
| £0 - £145,000 | 0% |
| £145,001 - £250,000 | 2% |
| £250,001 - £325,000 | 5% |
| £325,001 - £750,000 | 10% |
| Over £750,000 | 12% |
These tables and charts can be confusing, so if you are looking for a way to calculate how much stamp duty you would pay on a property, try our stamp duty calculator.
How can I claim back Stamp Duty?
If your second home becomes your main residence, you can claim back additional stamp duty by:
1. Ensure you have all the necessary paperwork
The necessary paperwork includes:
- Your own details
- Details of the property you’re claiming back for
- Information for your previous main address
- Tax details for the new property
- What you wish to claim back
2. Sign up for a Government Gateway ID
Government Gateway IDs are necessary for filling out the online form on the GOV.UK site.
3. Fill out the SDLT Repayment Form
You can fill out the SDLT repayment form through the GOV.UK site or print the completed form and send it through the post.
Ready to start investing?
At RWinvest, we offer a range of lucrative buy-to-let investment properties and a dedicated team that can provide information on the complexities of Stamp Duty.
If you’re ready to start investing in a second property, view our investment properties for Luton, Birmingham, Liverpool, London, and Manchester today, or get in touch directly.
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Frequently Asked Questions
You may not need to pay Stamp Duty if:
You become the proper owner after a divorce or civil partnership dissolution.
You purchase a lease of seven years or over for less than £40,000. Annual rent must be less than £1000.
You’re buying a caravan, motorhome or houseboat, regardless of value.
The property was left as part of a will.
The freehold property is worth less than £40,000.
A second home is any property you purchase when you already own one, including:
Buy-to-let properties.
Holiday homes.
Properties bought as a family gift.
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- How Can I Avoid Paying Stamp Duty On A Second Home?
- Understanding Stamp Duty Land Tax
- How Much Stamp Duty Do I Have To Pay On A Second Home?
- England and Northern Ireland Stamp Duty
- Wales Stamp Duty Rates
- Scotland Stamp Duty Rates
- How can I claim back Stamp Duty?
- Ready to start investing?
- Frequently Asked Questions