What you need to know about stamp duty on a UK second home

Published Date: October 28, 2022

Second home ownership is a dream for many. Whether it’s a place for you to get away, an asset to pass to your children or a rental investment, the idea has a lot of appeal.But don’t forget that you are required to pay a tax called stamp duty on every house purchase in the UK. The supply of second homes — especially in the more desirable areas of the UK — has been constrained by complex planning rules, a desire to leave more housing stock for people buying their main residence, and efforts to rein in a booming buy-to-let market. Here’s a guide to the stamp duty surcharge, introduced in 2015.

What is stamp duty?

Stamp duty is a tax payable as a percentage of the purchase price of a property. You’ll also see it referred to as Stamp Duty Land Tax (SDLT). The current rates are as follows:
PURCHASE PRICE OF PROPERTYSTAMP DUTY RATESTAMP DUTY RATE FOR ADDITIONAL PROPERTIES
UP TO £250,0000%3%
£250,001 to £925,0005%8%
£925,001 to £1.5M10%13%
Over £1.5M12%15%
*The SDLT rates changed as of 23/9/2022 and may also change in the future, according to the government’s tax policy.As you can see from the table, the rates for second homes are different — 3% higher, unfortunately. It’s graded and tied to the value of the property, so the more expensive the home, the more you pay. It’s also banded, meaning you pay the different grades only on the amount above the threshold.

How it works

To illustrate: You buy your dream second home for £2M. How much stamp duty do you pay? You do not owe 15% of £2M (which would be £300,000).Instead, you pay 3% on the first £250K (£7,500), 8% on the part between £250K and £925K (£54,000), 13% on the part between £925K and £1.5M (£74,950), and then on the final £500K, the SDLT would be £75,000. This gives a grand total of £211,450.You don’t have to do these laborious calculations – there are online calculators that will crunch the numbers for you:There are exceptions to second home stamp duty. If the property is worth less than £40,000 or is a caravan, mobile home or houseboat, you are not liable to pay for stamp duty.

Non-UK residents, beware

Since April 2021, buyers who are not residents of the United Kingdom have had to pay an additional 2% on top of the standard and additional home stamp duty rates — taking the scale as shown on the table above from a minimum of 5% and topping out at 17%. Just a reminder that UK residency is distinct from being a UK citizen or British National Overseas passport holder. Even if you are a citizen, you still have to have been resident in the UK for 183 out of the last 365 days to avoid paying the surcharge.

Owning property abroad

UK residents are liable for the 3% additional stamp duty even if the only other property they own is abroad. So, a holiday home in France or a timeshare in Tenerife will mean you pay the stamp duty for second homes rate, even if you are buying your first home in the UK.

Properties in Scotland and Wales

Properties in these two countries of the United Kingdom have different rules and rates of stamp duty, typically 1% more across the board, with even higher levels in Wales.

Married couples and civil partnerships

Married couples are treated as one unit by HM Revenue and Customs. You can’t avoid the surcharge by putting the second property in your spouse or civil partner’s name.

Rates with Pacaso’s model

With shared ownership, you will be liable for a share of the total stamp duty which is payable on the total value of the property. Taking the above example of a £2M property with eight shares of £250,000 each, each owner would pay £26,431.25 — considerably less than you would have to pay if you bought the whole property!One final recommendation: We suggest that you consult with your own tax advisor to fully understand the implications of these taxes.

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