Our definitive guide to saving on Stamp Duty, even if you’re buying a second property. 

What classes as a second home?

A second home is any property which isn’t your main residence, the place you live day-to-day. This may sound a little obvious, but it’s not always super clear. 

If you have bought the other property as a holiday let, a buy-to-let investment or you’ve bought it as a gift for a family member, they all count as a second home even if you have completely paid off the mortgage on your current, or main home. It doesn’t matter if your primary residence is in another country either I’m afraid. If you are buying a property but are already named on the title of another then you will have to pay Stamp Duty on it. 

It’s also not possible to choose which house you list as your primary residence, and it might  not actually be the place you spend the most time, HMRC has clearly defined regulations on the definition:

• The property located in the region where you’re a registered voter
• The property is in close proximity with your children’s schools
• The property is in the region where you’re a registered professional
• The property is in the location where your family spends most of their time, especially if you’re married

What if you don’t plan to live in the second property?

If you are buying a second property, even if you plan to rent it out or use it as a holiday home and let it out partially, both of these are classed as a second home. 

If, however, you already own a buy-to-let and you’re selling your main residence to buy another primary residence, you will pay the normal Stamp Duty rates, instead of the ‘second home rates, as you’re changing your main residence, rather than buying an extra home.

How much is Stamp Duty on a second home?

Stamp Duty on a second home is at a higher rate than you would expect to pay on your main residence. The rates are about 3% higher and also start at a lower threshold.

Stamp Duty is added to second homes that cost over £40,000. For a main residence, you currently don’t pay any Stamp Duty on properties under £500,000, due to the current ‘Stamp Duty Holiday’. The Stamp Duty Holiday has now been extended until 30th June 2021 so there is still time to save on  purchasing a new home. The holiday does not include second homes though unfortunately! 

So how much actually is it? Stamp Duty rates vary depending on whether you are buying in England & Northern Ireland, Wales or Scotland.

New stamp duty rates are in effect July 8th, 2020 until June 30th, 2021 in England and Northern Ireland

How to avoid stamp duty on a second home   

OK, so you want to expand your property portfolio but this additional charge could mean the difference between being able to buy now or next year – so what are your options? There are a few ways to get yourself out of this issue legally and safely. 

Stamp Duty is only charged on second homes over £40k so if you find one below that amount you are exempt from the tax. This might sound a bit far fetched in the current climate but you’d be surprised, running some creative searches on the major property portals can actually yield more results than you think! 

The other big caveat is that if there is seven years or less left on a lease, the second home tax percentage does not apply. Of course, it’s quite hard to search for properties by leasehold length so this will require a bit of digging but extending a lease will cost considerably less than a potential 3% on a pricey house.  Also, the additional 3% rate of stamp duty only applies to stationary properties so look into “moveable” properties, such as caravans, houseboats or mobile homes. 

You may also be able to benefit from the three-year rule. This is when buyers can claim a stamp duty refund if they sell their main residence within three years of completing on a new property. This was recently extended due to the pandemic so anyone who purchased a new main residence on or after January 1, 2017, may be able to apply for a refund of the tax if they were unable to sell their previous main residence before the expiry of the three-year time limit owing to the uniquely exceptional circumstances of the coronavirus crisis. 

What this means is that if you moved into your second property and ended up having to rent out the original one because the pandemic prevented you from selling it, you can apply for a refund on the Stamp Duty paid. In this scenario, you’d still have to pay it now but you may be eligible for a refund in the future.

What if I’m buying a place to live

This is where things can get a little complicated.

If you’re buying a property to replace your main residence and you don’t own any other property, then the additional stamp duty rate isn’t due. But, you have to have sold, or have a sale agreed on 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.

I own a property but my spouse doesn’t – does that still count as a second home?

Married couples and civil partners are classed as one unit by HMRC and for Stamp Duty purposes. So, if you own a property and your spouse wants to buy one, the additional rate will need to be applied. Whether the property you own is your main residence or a buy-to-let property, the second home stamp duty rate still applies if your spouse or civil partner is buying their first property. 

I own a property but my partner doesn’t – does that still count as a second home?

If you live with a partner but you’re not married or in a civil partnership, you can each own a home outright without paying extra Stamp Duty tax. You must both be on just one property deed for this to apply. If you own a property and want to buy a property jointly with your partner then the second home tax applies. 

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 you move out of the marital home and a ‘property adjustment order’ is in place to hand the home over to your spouse then the additional stamp duty rate does not apply. You are essentially each buying or owning your own independent properties and are intending to live entirely separate from one another so they count as two main residences, not a second home. 

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.

I’m buying a property for my children, will I have to pay the extra stamp duty?

The general rule is, If your name is going to be on more than one set of deeds, then you will be charged for owning a second property and the additional 3% will be due. However, there are a few ways you can avoid it:

• Gift a deposit – if you gift the deposit and your children get the mortgage sorted, it is essentially in their name so the additional tax doesn’t apply. In fact if they are First Time Buyers then there isn’t any Stamp Duty tax at all up to a point
• Act as a guarantor – Guarantors aren’t classed as owning the property. So, you will avoid the additional rate

Does the additional rate apply to leasehold extensions?

The short answer is – sometimes. 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.

I want to buy-to-let through a limited company

Companies are not exempt from paying the higher rates of stamp duty on additional properties so it’s not cheaper to do it that way. 

Claiming a Stamp Duty Refund

If you are not exempted from paying stamp duty for your second home, you could be eligible to claim for a stamp duty refund. Claiming a stamp duty is valid only if;

• You sold your old main residential property within three years of purchasing your new main residence.
• You paid stamp duty for the second home by mistake.
• You apply for the stamp duty refund 12 months after the filing date of the Stamp Duty Land Tax returns.
• You apply for the stamp duty refund 3 months after selling your old main residence.
• To get your stamp duty refund, you will be required to submit your tax details to the Her Majesty’s Revenue and Customs (HMRC) department. This process can be done online via the department’s website. Here are some details you will need to provide;

The amount you wish to claim back.

The total stamp duty you paid.

The address of the old main residential home that you have sold.

The address of the home for which you paid the additional stamp duty charge.

Within 15 working days of applying for the stamp duty refund, HMRC will wire the money back to you upon approval.