Everything you need to know about stamp duty on a second home

Purchasing a second home involves additional financial considerations, with stamp duty being one of the most significant. Understanding stamp duty and its implications on second home purchases is crucial for potential buyers. This guide delves into the specifics of stamp duty on second homes, offering expert advice, practical tips, and detailed information to help you navigate this complex aspect of property ownership.

What is stamp duty on a second home?

Understanding stamp duty

Stamp duty, officially known as Stamp Duty Land Tax (SDLT), is a tax imposed on property transactions by the UK government. For second-home buyers, this tax includes an additional surcharge compared to first time buyers. The primary purpose of stamp duty is to generate revenue for the government and regulate the property market by discouraging excessive property accumulation.

Why stamp duty is higher for second homes

The government imposes a higher stamp duty rate on second homes to curb the practice of owning multiple properties, which can inflate property prices and limit availability for first-time buyers. This surcharge is designed to encourage the purchase of homes as primary residences and support the housing market's stability.

How much is stamp duty on a second home?

Stamp duty rates for second homes & how to calculate

Stamp duty rates for second homes include a 3% surcharge on top of the standard rates for primary residences. Here is a detailed breakdown:

• Up to £250,000: 3%
• £250,001 to £925,000: 8%
• £925,001 to £1.5 million: 13%
• Over £1.5 million: 15%

For example, if you purchase a second home for £300,000, the stamp duty would be calculated as follows:

• First £250,000 at 3% = £7,500
• Next £125,000 at 5% = £6,250
• Remaining £50,000 at 8% = £4,000
• Total Stamp Duty: £11,000

Stamp Duty on a Second Home Calculator

Online calculators can simplify the process of determining your stamp duty liability. To use a stamp duty calculator, enter the property price, indicate whether it's a second home, and review the calculated stamp duty amount, including the 3% surcharge. For a practical tool, visit Hamptons' Stamp Duty Calculator​ ( Hamptons )​.

What happens if I own a property abroad?

The UK's tax regulations regarding stamp duty land tax (SDLT) are designed to account for all properties owned worldwide, which affects those buying additional properties in the UK. 

For individuals purchasing an additional residential property, including those who already own property abroad, there is an extra 3% surcharge on top of the standard SDLT rates. This surcharge applies regardless of the location of your first property. Therefore, if you own a home in another country and buy another residence in the UK, this purchase will be considered as an additional home.

Here's how the surcharge works:

• Standard Rate: Applies to the purchase price of properties up to a certain threshold.
• Higher Rate: An additional 3% surcharge on top of the standard rates for each price band.

For example, as of the latest guidelines, if you purchase a second home for £300,000, the standard SDLT might be 5% of the purchase price. However, with the additional home surcharge, you would pay an extra 3% on top of this, resulting in a total SDLT rate of 8% of the purchase price, which equates to £24,000 in stamp duty for your second home.

Will I pay the surcharge if I plan to live in my second home?

If you are buying a second home in the UK and intend to live in it, whether as your primary residence or not, you will still be subject to the 3% stamp duty surcharge. This surcharge applies to all additional residential properties purchased in the UK if you already own another property anywhere in the world, regardless of your plans for residency in the new home.

Understanding the surcharge criteria

The key factor that triggers the surcharge is the ownership of more than one residential property globally at the end of the day on which your new purchase is completed. Here’s how it applies:

• Ownership of multiple properties: If you own another property that hasn't been sold before or on the day you complete your new home purchase, you will be liable for the surcharge.
• Intended use does not matter: The intended use of the new property—whether as a primary residence or not—does not affect the application of the surcharge. It is the number of properties owned that is relevant.

Potential Refunds

If you are replacing your main residence but need to pay the surcharge because you haven’t yet sold your previous main home, you may be eligible for a refund. This refund is possible if you sell your previous main residence within 36 months of completing the purchase of your new main residence. To claim this refund, you must apply to HM Revenue and Customs (HMRC) within 12 months of the sale of your previous home or within 12 months of the filing date of the SDLT return, whichever comes later.
Understanding the intricacies of stamp duty, especially for second home buyers, is essential. Discover more about whether you pay stamp duty when selling a property here.

Do you have to pay stamp duty on a second home?

Situations where stamp duty might be exempt

In certain scenarios, stamp duty on a second home might be exempt. These include:

• Main Residence Replacement Relief: If you sell your main residence and purchase another within a specified timeframe, you might qualify for relief.
• Inherited Properties: Stamp duty may not apply to properties inherited rather than purchased.

How to avoid stamp duty on a second home

Legal ways to reduce or void stamp duty

While stamp duty is generally unavoidable, there are legal strategies to reduce or avoid it:

• Transfer of Property Ownership: Transferring ownership to a spouse can sometimes result in lower stamp duty, depending on the circumstances.
• Purchasing Through a Company: If buying multiple properties, purchasing through a company may offer tax benefits.

Expert tips and tricks

• Plan Your Purchase Timing: Selling your main residence before buying a second home can help avoid the 3% surcharge.
• Consult with Experts: Engaging with property solicitors and tax advisors can uncover potential savings and ensure compliance with tax laws.

Important considerations

Financial planning for second-time buyers

Effective financial planning can mitigate the impact of stamp duty. Consider the following strategies:

• Budgeting: Incorporate stamp duty costs into your overall budget to avoid financial strain.
• Savings Plan: Set aside funds specifically for stamp duty to ensure you are prepared when the time comes.

Planning your purchase

Timing is crucial when planning a property purchase to minimise stamp duty:

• Sell First, Buy Later: Ensure your main residence is sold before finalising a second home purchase.
• Explore Relief Options: Investigate potential reliefs and exemptions early in the buying process.

Navigating the legal landscape

Key legal considerations include:

• Consulting Legal Experts: Engage with a solicitor to understand your obligations and potential reliefs.
• Understanding Contract Terms: Ensure contracts are thoroughly reviewed to avoid unexpected stamp duty liabilities.

FAQs on stamp duty for second homes

Common questions and answers

• Question: Do I have to pay stamp duty on a second home?

Answer: Yes, second homes incur a 3% surcharge on top of the standard stamp duty rates.

• Question: How much stamp duty do I pay on a second home?

Answer: The amount depends on the property price and current rates. Use our online calculator for precise figures.

For more information from our property experts, have a read through our article on second home buyers for a greater insight into second homeownership.

Final thoughts

Understanding stamp duty on a second home is essential for making informed property purchase decisions. By familiarising yourself with the rates, exemptions, and legal considerations, you can effectively manage the financial impact of buying a second home.