Stamp Duty: What Is It and How to Avoid It on a Second Home?

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If you wish to buy a second home in the UK, you should be aware that you’ll need to pay stamp duty. Our guide addresses what stamp duty is, who is obliged (and when) to pay it, how much it costs, and how to avoid stamp duty on second home, as well as the most frequently asked questions on this topic.

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What Is Stamp Duty?

Stamp duty is a government tax that must be paid when buying a property worth over a specific amount of money, including leasehold and freehold properties. You’re also obliged to pay if you inherit a property or receive it as part of a settlement. In England and Northern Ireland, this tax is called a Stamp Duty Land Tax (SDLT); in Wales, it’s a Land Transaction Tax (LTT), and in Scotland, it’s known as a Land and Buildings Transaction Tax (LBTT).

The stamp duty on a second home is paid by homebuyers. In most cases, the solicitor pays the tax on the buyer’s behalf as part of the purchase process. If you’re a first-time buyer and don’t own a house, you won’t need to pay stamp duty as long as your home costs less than the predetermined sum for each region.

DID YOU KNOW? In the UK, stamp duty was first introduced in 1694 during the reign of William and Mary. It was treated as a transaction tax and applied to various goods, including medicine, newspapers, and hats. This tax was implemented to raise money for the war against France.

When Do You Have to Pay Stamp Duty?

This unavoidable tax must be paid in the following situations.

  • Property cost exceeds £40,000: Buying property valued at more than £40,000 results in stamp duty.
  • Property abroad: If you own a property abroad—even if you first purchase property in the UK—you still must pay stamp duty.
  • Inherited property: The stamp duty on a second property depends on how much you inherit. If you inherit more than 50% of the property, you must pay stamp duty.

The above situations require you to pay stamp duty. So if you find yourself in one of these situations, be prepared to pay accordingly.

DID YOU KNOW? Until 1997, homebuyers paid 1% tax on properties that cost more than £60,000. After 1997, higher bands were introduced for higher payments, with the upper band at £500,000.

How Much Is Stamp Duty on a Second Home?

Stamp duty is determined by the value of the property. If your property value exceeds the threshold, you must pay the tax at the set stamp duty rates. Once the property value exceeds the minimum threshold, the rates are calculated as a percentage of the total property value. Non-UK residents must also pay a 2% surcharge.

The rates differ, depending on whether you’re buying a property in England and Northern Ireland, Wales, or Scotland. Consider the following percentage rates for stamp duty on second homes in each jurisdiction.

England & Northern Ireland

Property Value Stamp Duty Rate Stamp Duty Rate for Second Home
Under £125,000 (£300,000 for first-time buyers) 0% 3%
£125,00–£250,000 2% 5%
£250,001–£925,000 5% 8%
£925,001–£1.5m 10% 13%
Over £1.5m 12% 15%

Wales

Property Value Stamp Duty Rate Stamp Duty Rate for Second Home
Up to £180,000 0% 4%
£180,001–£250,000 3.5% 7.5%
£251,000–£400,000 5% 9%
£400,001–£750,000 7.5% 11.5%
£750,001–£1,500,000 10% 14%
Over £1.5m 12% 16%

Scotland

Property Value Stamp Duty Rate Stamp Duty Rate for Second Home
Up to £145,000 (£175,000 for first-time buyers) 0% 4%
£145,001–£250,000 2% 6%
£250,001–£325,000 5% 9%
£325,001–£750,000 10% 14%
Over £750,000 12% 16%
DID YOU KNOW? Stamp duty for second time buyers is also applicable if you’re purchasing a buy-to-let property. Since April 2016, landlords have been paying 3% more in stamp duty than other homebuyers. 

Key Takeaways

Stamp duty is a government tax paid upon purchasing a property valued over a specific amount of money.
Stamp duty is due when the property value exceeds £40,000, or you own another property at home or abroad or inherit more than 50% of a property.
Stamp duty is paid as a percentage of the total value of the property—the higher the value, the bigger the stamp duty.
There are several ways to avoid paying stamp duty. If stamp duty needs to be paid, there’s the possibility of getting a stamp duty refund.

How to Avoid Stamp Duty on a Second Home

When buying a second home, stamp duty can make your endeavour very costly. So before finalising your purchase, consider the following ways to avoid stamp duty.

Buy an Alternative Home

Not all properties are subject to stamp duty. Mobile homes, motorhomes, houseboats, and caravans are exempt, regardless of how much they cost. Buying one of these alternative homes will relieve you from this otherwise unavoidable tax.

Take Out a Mortgage in Someone Else’s Name

If you wish to know how to avoid stamp duty, getting a mortgage in someone else’s name is a good option. If you can get a family member who doesn’t own a property to take out a mortgage and purchase the property, they could also get the deed to the property in their name. You could gift the deposit money to them. And if you’re unsure how much they could borrow, a mortgage in principle can resolve your doubts.

Get a Family Offset Mortgage

A family offset mortgage allows you to place a portion of your savings in a bank account, later used by a family member to put down a deposit on a house and apply for a mortgage without paying a second house stamp duty for the property. As long as the family member makes regular payments, the money won’t be touched, and it’ll sit safely in the account.

Become a Guarantor

To avoid taxes and fees, you could have someone else take out a mortgage and buy a property in their name. You will only act as a guarantor—responsible for making the monthly payments if your family member is unable to.

Purchase Property Under £40,000

Properties worth £40,000 or less are exceptions from stamp duty on a second home. If you can find a property under £40,000, you won’t need to pay tax, depending on the region and the size of the property.

Pay Separately for Fixtures & Fittings

Some properties are sold fully furnished with such items as appliances, furniture, and carpets included in the price. But if the seller is willing, you can agree to pay for these items separately since stamp duty is due only on the value of the property itself and not on additional features.

Build Your Own Home

When legitimately avoiding stamp duty, a clever loophole is not exposed. For example, you can buy a piece of land and build your own home. If you only buy the land with permission to build on it, you must pay stamp duty on the value of the land, which will be significantly less than paying stamp duty on an already-built property.

DID YOU KNOW? When saving for a house, you should first pay off existing debt. Having large amounts of debt can make you seem like an unsuitable mortgage candidate and lower your chances of becoming a homeowner.

How to Claim Back Stamp Duty

If you find these strategies for avoiding stamp duty on a second property don’t fit your particular situation, don’t worry. Even if you must pay stamp duty, you can apply for stamp duty refunds and claim back the money you’ve paid. Consider the following two possible scenarios in which you can be eligible for a stamp duty refund.

Sell Your First Home within Three Years of Purchasing the Second One

In all parts of the UK, you’re entitled to claim back the stamp duty you’ve paid on your second home if you sell your main residence within three years of the purchase of the second property. You need, however, to be very careful with the timing when claiming the second house stamp duty; if you apply even one day after the three-year mark, your claim will be refused.

When applying for a refund, you need to submit your details to the HMRC, providing information about the two properties, the stamp duty for the property you’re selling, and the amount you want to claim. The refund should be in your account 15 working days after the HMRC receives your application.

Take Advantage of a Stamp Duty Holiday

The UK government introduced a stamp duty holiday in July 2020—a period when the stamp duty on second homes fell to 0%. In 2021, the stamp duty holiday lasted from 1 July to 30 September, during which time the stamp duty rates were 0% on properties valued up to a specific amount. If you bought a home during this period, you could apply to have the stamp duty refunded or avoid paying it.

In England and Northern Ireland, there was no stamp duty on properties valued up to £500,000, later reduced to £250,000. In Scotland and Wales, the stamp duty for second time buyers was 0 on properties up to £250,000.

DID YOU KNOW? Purchasing a house is one of the most important decisions you’ll ever make. It’s vital that you ask the right questions when viewing a house, e.g., Why is the house for sale? What’s included in the sale?

Conclusion

Learning about stamp duty is essential for all prospective homebuyers. Hopefully, our guide has helped you understand what stamp duty entails, when you’re responsible for it, and how to avoid stamp duty. So you can start scouring the market for a new property, fully equipped with the necessary knowledge about stamp duty.

FAQ

Do you have to pay stamp duty if you own 2 properties?

If you already own one home and wish to purchase another property, you must pay stamp duty on the value of the second property.

Can you claim back stamp duty on a second property?

Selling your main residence within three years of purchasing the second one will make you eligible to claim a refund for the stamp duty you’ve paid—unless you know how to avoid stamp duty on second home upon purchase.

How long do you have to claim stamp duty back on a second home?

You have three years to submit a claim for a stamp duty refund. After this period expires, you’ll be considered ineligible, and your application will be rejected.

ABOUT AUTHOR

Alex is an IT wizz gone SEO gone fire-juggler. We’re not even joking. When he isn’t researching why one personal loan is better than the other and which piece of hardware you should buy next, he’s rollerblading or selling homes (because he does that, too, the smarty-pants).

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