Stamp duty for second homes
Since April 2016 there has been an additional rate of stamp duty for second homes. If you are buying an additional property or are buying a home and may end up owning two properties even just temporarily, you have to pay extra stamp duty. Here’s everything you need to know.
Anyone buying an additional residential property worth £40,000 or more will have to pay stamp duty for second homes. This applies whether you’re buying a second home, buy-to-let investment or any additional property.
You have to pay the extra rate even if the property you already own is abroad. It also applies if you only own a share in a property.
How much is the stamp duty for second homes?
The additional stamp duty charge is a flat 3% levied on the whole value of properties worth more than £40,000.
Standard Stamp Duty Rate Rate for additional properties
£0-£40,000 0% 0%
£40,000 – £125,000 0% 3%
£125,000 – £250,000 2% 5%
£250,000 – £925,000 5% 8%
£925,000 – £1.5m 10% 13%
£1.5m+ 12% 15%
You pay the extra stamp duty rate on top of the normal stamp duty rate. For example, if you’re buying a second home worth £300,000 you would pay 5% stamp duty, plus the extra 3%. That means a total stamp duty bill of £14,000. In contrast, you’d pay only £5,000 if it was your only property.
What properties are excluded from the stamp duty for second homes?
There are a few cases where you won’t have to pay the additional stamp duty rate:
- When you are buying property worth less than £40,000 then you are exempt.
- If you purchase a caravan, mobile home or houseboat regardless of how much you are paying for them.
- Anyone buying a home they intend to live in won’t pay the additional rate provided you have sold your existing home.
Do I have to pay if I’m a first-time buyer?
If you don’t own any property but decide to purchase a buy-to-let property then you won’t pay the stamp duty for second homes. That’s because you’ll only own one property.
But, you will pay if you have a part-share in another property, have inherited a property or are buying with someone else who already owns a property.
What if I plan to live in the property I’m buying?
This is where things can get a little complicated.
If the property you are purchasing is going to replace your main residence, then the additional stamp duty rate isn’t payable. But, you have to have sold your original main residence in order to get this exemption. If you haven’t managed to sell your old place but want to buy the house of your dreams, you’ll have to pay the stamp duty for second homes. Sell your original home within 3 years, you can claim the extra stamp duty back.
If you are in rented accommodation, own a buy-to-let property and are buying a home to live in then the additional stamp duty rate is due. This is because rented accommodation doesn’t class as your main residence because you don’t own it. However, there is a loophole to this one. A little-known transitional rule states that if you sold a property that you lived in prior to 25 November 2015 – the date the additional stamp duty rate was announced – and you buy a new main residence before 26 November 2018 then you are exempt.
If you are in doubt you should call HMRC on 0300 200 3510. But, we’ve heard of a few instances where HMRC has given out the wrong advice. So, it could be worth speaking to an independent expert too.
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What is a main residence?
Unlike with other taxes you don’t have the luxury of selecting which of your properties is your main residence. If you only live at one home, then that is your main residence for stamp duty purposes.
If you spend time at more than one, then HMRC decides which is your main residence. It will consider several factors including:
- If you are married, where does the family spend the most time?
- If you have children, where do they go to school?
- Where are you registered to vote?
- Where are you registered with a doctor/dentist?
What if I own property abroad?
You are liable for the 3% additional stamp duty even if the only other property you own is abroad. So, a holiday home in Tuscany or a timeshare in Florida will mean you pay the stamp duty for second homes rate, even if you are buying your first home in the UK.
If a property is in my spouse’s name can we dodge the additional stamp duty rate?
For stamp duty purposes a married couple, or civil partners, are classed as one unit by HMRC. So, if one owns a buy-to-let property and the other buys a property the second home stamp duty rate still applies. This can make things expensive if you are separating and need to buy another home for one partner.
I’m getting divorced and buying a home do I have to pay the second home rate?
There are special rules in place for this. If Partner A moves out of the marital home and a ‘property adjustment order’ is in place to hand the home over to Partner B, then the additional stamp duty rate does not apply.
If you haven’t organised a ‘property adjustment order’ – your divorce solicitor will help you with this – then you do have to pay the additional stamp duty rate. But, you can claim a refund if you sell your share in the marital home within three years of when you moved out.
You can find out more with our guide to what happens to your home when you separate.
I’ve inherited property do I have to pay the additional rate?
It depends on how much you have inherited. If someone leaves a property in their will and you become the sole owner you have to pay the additional stamp duty if you buy another property.
But, if you have only inherited a share of a property you may be exempt. According to legislation if you inherit 50% or less of a property, and you buy a residential property within three years, you don’t have to pay the extra 3% stamp duty.
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.
I don’t own any additional properties but the person I’m buying with does. What can we do?
Unfortunately, if anyone buying the a property owns another then the stamp duty for second homes rate will be due. Unless they are replacing their main residence
You could avoid this is if the person who doesn’t own any other property buys in their name only. But, this could throw up other problems with your mortgage affordability and who benefits from future price rises.
Does the additional rate apply to leasehold extensions?
Yes, it might do. Stamp duty applies to lease extensions just as it does to any other property purchase. But, the £125,000 threshold for standard stamp duty means most people don’t have to pay it.
The issue with the stamp duty for second homes rate is that it kicks in at a much lower £40,000. Pay more for the extension, and own other properties, and you’ll pay the additional stamp duty rate. However, if the lease extension is on your main residence you are exempt.
How do I claim a stamp duty refund?
If you sell your previous main residence within three years then you can claim a refund. Equally, if you think you’ve paid the stamp duty for second homes rate by mistake then you can also apply for a refund.
You will need to provide all your details to HMRC including:
- The address of the property you paid the higher rate on
- The address of the previous main residence that you have sold
- How much stamp duty you paid in total
- How much you wish to claim back
You can file your refund on the HMRC website and, if approved, the money should be back with you within 15 working days.