Stamp Duty and Second Homes in the UK – Your Essential Guide
Stamp duty can rank among the most expensive and downright confusing parts of buying and selling private residences in the UK, and the complexity levels increase when second homes change hands. Governments tend to do what they can to make primary homes affordable, but second homes are subject to stricter rules and higher costs.
Properties that Qualify as Second Homes
For stamp duty calculations, a second home is defined as a property you own that isn’t your principal residence. Common reasons for ownership include holiday homes, buy to let houses and separate properties for work commitments.
As well as stamp duty land tax (SDLT), second homes can also be subject to capital gains tax when sold. These additional costs can make professional advice hugely important, especially when buyers and sellers take their circumstances into account. You may, for example, become liable for different charges depending on whether the buyer will use the home as their main residence.
Second Home Stamp Duty Rules Throughout the United Kingdom
Law-making concerning stamp duty is a devolved power, so the specifics vary between countries. Crucially, while regulations vary, the definition of a second home applies anywhere in the UK. In cases where the secondary residence is in a different constituent country to the owner’s main house, the rules of the second home’s location apply.
Stamp Duty on Second Homes in England
The government overhauled second home stamp duty rules in April 2016. Under the new regulations, buyers became liable for an additional charge on top of standard stamp duty rates.
When purchasing a primary residence, homes are only subject to SDLT when the value of the property exceeds £125,000. For second homes, the threshold reduces to £40,000.
In practice, the additional surcharge works out to three per cent over and above the standard stamp duty rate. As homes worth between £40,000 and £125,000 are not subject to any stamp duty as primary residences, this simply becomes a three per cent SDLT levy.
If you use a budget calculator to work out what you can afford by way of a second home, look out for an option to specify that the new purchase won’t be your principal residence. It should add the extra three per cent surcharge automatically.
Scotland’s Second Home Stamp Duty Rules
Scotland doesn’t follow the same stamp duty rules as England. In its place, buyers will instead pay a land and buildings transaction tax (LBTT). Just as with second homes in England, purchasers of second homes pay the same LBTT rate as everyone else with an additional fee, known as the Additional Dwelling Supplement, or ADS.
In Scotland, buyers should expect to pay an additional four per cent. LBTT does not come into effect until a property is worth £145,000 or more, but buyers will pay four per cent as standard for any second home purchase that falls underneath this threshold.
Unlike in England and Wales, there is no minimum threshold for the second home LBTT surcharge. Regardless of the final sale price and LBTT considerations, buyers should expect to pay four per cent of the total sale price in addition to other fees.
The Land Transaction Tax in Wales
In Wales, the name of the surcharge differs once again, as do the thresholds. However, the increase remains the same as in England, as those seeking to purchase a secondary residence should account for an additional three per cent surcharge over and above the land transaction tax (LTT).
LTT doesn’t come into effect until a property’s value exceeds £180,000 on primary residences. However, if the property is worth more than £40,000 and will not be the buyer’s main home, the additional three per cent becomes an important consideration. It is levied as an additional fee on the full purchase price, other than the initial £40,000 of the home’s value.
Navigating Stamp Duty on Second Homes
There’s plenty to consider when budgeting for a second home, especially if you plan to purchase a property in a different country within the United Kingdom. However, the rules are well-established, and an adequate secondary residence budget calculator will take local tax laws and thresholds into consideration. Few property transactions proceed without professional guidance, and your advisers will assist with keeping costs as low as possible as purchases and sales progress.