How To Avoid Stamp Duty on a Second Home

If you’re buying a second residential property across the UK, higher rates of Stamp Duty apply than for those buying their primary residence.

A minimum of a 3% surcharge applies in England and Northern Ireland, with the figure rising to 4% in Wales and 6% in Scotland.

If you’re considering buying a second property and want to avoid paying more Stamp Duty, we’ll explore what you can do to avoid the extra charge that complies with HM Revenue and Customs (HMRC).

What is Stamp Duty?

Stamp Duty Land Tax commonly applies to the transfer of property, such as real estate and shares. The purpose of Stamp Duty is to generate revenue for the government and document the transaction for legal purposes. The specific rate for Stamp Duty varies depending on what part of the UK you’re in and the value of the transaction or property being transferred.

What counts as a second home?

It can be hard to define what a second home means, as the term can be vague. A second home refers to any property purchased beyond the one you already own. Some examples of a second home include:

• Buy-to-let property
• Property bought as a gift
• Holiday home

When do you need to pay Stamp Duty on a second property?

If you purchase a second home, it’s hard to avoid paying the additional Stamp Duty tax. However, there are two scenarios in which you won’t pay Stamp Duty on purchasing a second property:

• If the value of the freehold property is less than £40,000
• If the property purchased is a houseboat, caravan or any form of mobile home

As these two scenarios won’t apply to most people purchasing a second property, the ways you can avoid the charges are limited. However, there are specific circumstances in which the additional charge might apply or not. Some of these are listed below.

You don’t own any property, but your co-buyer does

Buying a house with your partner when they already own a home is a situation that crops up a lot. One person already owns a home while the other was either renting or sold their old home.

If the person who doesn’t own another property buys the new home solely in their name, they can avoid Stamp Duty provided they’re not married or in a civil partnership.

However, it’s often not that simple. The named party will need to pass affordability tests by themselves, which could be problematic depending on their level of income.

If you pass the tests, there’s still the issue of who owns the home, which could be an issue if there’s a split down the line.

You’re extending the lease on a second property

Stamp Duty applies to lease extensions and is viewed the same way as any other property purchase. So, if the premium on your lease extension is £300,000, Stamp Duty will apply to £50,000 of that figure.

However, if you own multiple properties, the threshold is much lower at £40,000. So, if your lease extension costs more than £40,000 you will have to pay the higher rates of Stamp Duty.

The only way to avoid the fee is if you’re extending the lease on your main residential property.

You’re purchasing the property for someone else

If you’re buying a property for your children, for example, Stamp Duty will still apply in this scenario. That’s because if your name is on the deeds, you own the property in the eyes of the law.

You can get around this to you avoid paying Stamp Duty. You could opt for a guarantor mortgage, where you become the guarantor in case the applicant can’t meet repayments. Another option is to use a gifted deposit to increase the equity of the person buying the home, which wouldn’t require you to be on the deeds.

A family offset mortgage is another option. Your savings are used as a deposit, transferred to an account linked to the mortgage and deducted from the loan. Once 25% to 30% of the loan has been repaid, your savings are transferred back to you.

Inheriting a property

You don’t pay Stamp Duty if you inherit a property. However, you will pay Stamp Duty if you inherit sole ownership and then decide to buy another property in the future.

It’s important to note you might also pay Inheritance Tax or Capital Gains Tax if you make a profit when selling a home that’s not your main residence.

Purchasing a property overseas

If you’re buying a property overseas, you’ll still need to pay Stamp Duty if it’s a second home. So, if you own a property in the UK but purchase a property in Spain, you’ll still have to pay Stamp Duty.

This doesn’t apply to mobile homes, caravans or houseboats.

If you want to get an idea of how much Stamp Duty you could end up paying if you purchase a second property, use our Stamp Duty calculator below:

How much is the Stamp Duty rate for second homes?

You’ll need to pay Stamp Duty on a buy-to-let property if you purchase one as a second home. You’re required to pay an extra 3% on top of the standard Stamp Duty rates. The additional charge applies to properties valued over £40,000 and does not include houseboats, caravans, or any type of mobile home.

We’ve broken down what you can expect to pay based on property price and jurisdiction as there are different rules in Scotland and Wales. In Scotland, Stamp Duty is known as Land and Buildings Transaction Tax, while in Wales it’s called a Land Transaction Tax.

Stamp Duty in England and Northern Ireland

Stamp duty in Scotland

Stamp duty in Wales

Can I claim back Stamp Duty on a second home?

If you’ve bought a second home in England or Northern Ireland, you may be eligible to claim back the Stamp Duty paid, subject to specific circumstances. You can apply for a refund on the additional 3% surcharge if you sold your previous main residence.

One example is when you purchase a new home before selling your current one. Even though you’re moving house, you technically own two properties, with the original considered your main residence and the new home an additional property. In such cases, you can claim back the surcharge provided you sell your previous main residence within 36 months of completing on the new one.

You must make the refund claim within 3 months of selling your previous main residence or 12 months of the filing date of the Stamp Duty return, whichever comes later.

How to claim back Stamp Duty

If you want to claim back Stamp Duty on a second home when it becomes your main residence, these are the steps you need to follow:

• Prepare Documentation: Gather all necessary documentation related to both the purchase of your new main residence and the sale of your previous one. This includes Stamp Duty forms, conveyance documents, and any other relevant transaction paperwork.
• File a Refund Claim: Submit a claim for the refund of the higher Stamp Duty rates. This must be done within 12 months of the sale of your former main residence or within 3 months of the filing date of the Stamp Duty return for the new residence, whichever is later.
• Complete the Stamp Duty Refund Claim Form: You will need to fill out the Stamp Duty Land Tax refund form for higher rates on additional properties. This form is available on the HMRC website.
• Submit the Claim: Send the completed refund claim form along with any required supporting documents to HMRC. You can do this either by mail or online, depending on your preference and the facilities provided by HMRC.
• Wait for Processing: After submission, wait for HMRC to process your claim. The time taken can vary, but HMRC will review the documents and the circumstances of both the sale and purchase to ensure eligibility.
• Receive Refund: If your claim is approved, HMRC will issue a refund of the additional Stamp Duty paid. Keep in touch with HMRC if there are any delays or if further information is needed.

Speak to a mortgage broker

If you’re considering purchasing a buy-to-let property or a second home, your next move should be to speak to a mortgage broker. They can help you with the implications of purchasing an additional property and what this means regarding Stamp Duty.

By using our free broker-matching service, you can find a mortgage advisor who is the right fit for you. We can quickly assess your needs, circumstances and match that information with a broker who has a strong track record securing mortgages for people just like you.

Call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and a broker who is an expert in this area today.