Buying a house is a lengthy, expensive process. You will need to pay for the property itself, plus removals, solicitors and other administrative fees. On top of all this, the government will charge you stamp duty, a land tax levied on the purchase of properties.
If you are buying a second home, you will face a higher rate of stamp duty than if you don’t already own a property, or are purchasing a new main residence.
This article will take you through exemptions to stamp duty and suggest some legal ways to avoid it, or reduce the amount you will have to pay. There will also be an explanation of how to claim a refund from HMRC for stamp duty you have paid on a second home, as in some situations you may be eligible.
How much is the normal stamp duty rate, and extra rate?
If you purchase a second home, you will face an extra rate (3%) of stamp duty. The table below shows how much you will need to pay on a property, both the normal rate and the combined rate for a second home.
|Property value||Normal stamp duty rate||Second home extra rate included|
|£0 to £40,000||0%||0%|
|£40,000 to £125,000||0%||3%|
|£125,000 to £250,000||2%||5%|
|£250,000 to £925,000||5%||8%|
|£925,000 to £1.5 million||10%||13%|
|£1.5 million and above||12%||15%|
Note: until 1st October 2021 the 0% threshold is £250,000 due to the stamp duty holiday.
What is counted as a second home?
A second home is any property you own that is not your main residence. Regardless of if the property is bought for a family member, an investment or a holiday let, it still counts as a second home. The property might even be in a different country to your main residence, but it will still be classed as a second home with regards to stamp duty.
These are the factors that HMRC use to define a main residence:
- The property is located in the constituency where you are registered to vote
- The property is in a region where you are a registered professional, such as a doctor
- The property is located in the area you and your family spend the majority of their time, particularly if you are married
- The property is near to your children’s schools
Is a buy-to-let property counted as a second home?
Yes, a buy-to-let property is still counted as a second home, even if you never intend to live there and will only be using it as an investment or to rent out to others.
However, if you purchase a buy-to-let property and decide to sell your main residence and buy another, you will only have to pay the normal rates of stamp duty, rather than the higher second home rates. This is considered a change of main residence, rather than the purchase of a second home.
How much does stamp duty cost on a second home?
Stamp duty for a second home is set at a higher rate than for your main residence. The rates are roughly 3% higher and begin at a lower threshold, as you have to start paying stamp duty on second homes that cost over £40,000. In contrast, the threshold for a main residence is £250,000. This will be reduced to £125,000 on 1st October 2021.
Are there any ways to avoid paying stamp duty?
You may be resigned to yet another unavoidable expense related to your property, but fortunately, there are some ways to avoid paying stamp duty on your second home.
Circumstances which will avoid stamp duty on a second home:
- Purchasing a caravan, mobile home or houseboat as a second home
- Purchasing a freehold property for under £40,000
- Purchasing a second home that you intend to live in as your primary residence. This may entitle you to a stamp duty refund if you sell your other property within 36 months. You won’t be able to claim back the entire amount of stamp duty, but you can apply to receive the difference. For example, if your house cost under £250,000 (£125,000 from 1st October 2021) you can claim back the full amount of stamp duty, as under current legislation you wouldn’t have to pay any stamp duty on a property of this value.
Legal ways to avoid paying stamp duty
- Transfer property deeds – if you have received the property deeds from somebody else, mortgage free, in a will or as a gift, then you will not have to pay any stamp duty for the property.
- Negotiate over the property’s price – if you can haggle and get the price of the property you are buying under the 0% threshold for stamp duty tax (which is currently £250,000 for a main residence and £40,000 on a second home) then you won’t have to pay stamp duty. If this isn’t possible as the property is worth far more, you may still be able to reduce it enough to be charged at a lower rate of stamp duty, which will save some money.
- Account for fixtures and fittings separately – a way of reducing the property price is to pay for fixtures and fittings separately, hopefully dropping it under the 0% threshold.
- Purchase land – if you buy land and have planning permission to build on it, then you will only have to pay stamp duty on the price of the land, not on the house you will build. This makes it far more likely to be under the 0% threshold for having to pay stamp duty.
Is it possible to claim back stamp duty on a second home?
The simple answer is yes, you can can do this. In some cases, you are able to claim a stamp duty refund even if you are not exempt from paying stamp duty on your second home.
You need to meet the following criteria to be eligible to receive a stamp duty refund:
- You were charged stamp duty on your second home by mistake
- You sold your primary residence within three years of purchasing another
- You are applying for a stamp duty refund more than three months after selling your primary residence
- You are applying to receive a stamp duty refund more than 12 months after the filing date of the stamp duty returns
In order to receive a stamp duty refund, you will have to submit your tax details to HMRC. This can be done online. You will need to provide HMRC with the following details:
- The total amount of stamp duty you paid
- How much stamp duty you wish to claim back
- The address of your previous primary residence
- The address of the second home which you believe you were incorrectly charged stamp duty on
Fortunately, if you are trying to get a stamp duty refund, HMRC is supposed to get back to you within 15 working days. If your request has been approved, they will pay you back the money in full within the following 15 working days.