Whether you’re thinking about buying a second home in the UK to escape to on the weekends or purchasing a buy-to-let for extra income, there are various taxes and fees to factor in. These include more than just the cost of the property itself.
One of the major ones is second-home stamp duty, a necessary yet often pricey property tax. While it will be unavoidable for most people buying a second home, you may be able to sidestep paying for it under the right conditions and with a bit of know-how.
First of all, what is stamp duty?
Stamp duty is a type of tax that you’ll usually have to pay to the government whenever you buy a leasehold or freehold property or a piece of land. You’ll only be charged it if the property or land you’re buying is worth over a certain amount of money.
Depending on which area of the UK you buy a property in, you might see this tax being called:
Stamp Duty Land Tax (SDLT) in England and Northern Ireland
Land and Buildings Transaction Tax (LBTT) in Scotland
Land Transaction Tax (LTT) in Wales
Unless your primary residence is worth under a certain amount (typically £125,000 in England and NI, £145,000 in Scotland, or £180,000 in Wales) or there’s a stamp duty holiday in place, you’ll need to factor this cost into your budget.
You’ll find more detailed information about this necessary tax on our what is stamp duty page. We also have a handy stamp duty calculator, which you can use to help you accurately work out your estimated stamp duty costs.
How much is stamp duty on second homes?
The first thing to know about stamp duty rates for second homes (or buy to let properties) is that they are different to stamp duty rates for first properties. For starters, unless the property you buy is worth under £40,000, there is no minimum threshold for when stamp duty tax must be paid.
Again, stamp duty amounts and thresholds will differ depending on where you’re buying in the UK. To give you a rough idea of what you might need to pay, we’ve outlined the rates below for England and NI, Wales, and Scotland.
England and Northern Ireland second-home stamp duty rates
Those buying a second home in England or NI will find the stamp duty rates for both nations are:
3% for properties up to £250,000
8% for properties between £250,001 and £925,000
13% for properties between £925,001 and £1.5million
15% for properties over £1.5million
Scotland second home Land and Buildings Transaction Tax rates
If Scotland is the location of your second home, you can expect to pay the following in Land and Buildings Transaction Tax:
4% for properties up to £145,000
6% for properties between £145,001 and £250,000
9% for properties between £250,001 and £325,000
14% for properties between £325,001 and £750,000
16% for properties over £750,000
Wales second home Land Transaction Tax rates
For second homes bought in Wales, the Land Transaction Tax will be:
4% for properties up to £180,000
7.5% for properties between £180,001 and £250,000
9% for properties between £250,001 and £400,000
11.5% for properties between £400,001 and £750,000
14% for properties between £750,001 and £1.5m
16% for properties worth over £1.5m
Can I avoid stamp duty on my second home?
Stamp duty can make buying a second home very expensive. Usually, it’s an unavoidable tax you’ll have to legally pay as part of a property purchase. Nevertheless, there are some limited exceptions that you might be able to take advantage of to avoid paying it.
What’s more, it might be possible to claim back some stamp duty if you later decide to sell your first home.
Ways to avoid stamp duty on your second home
1. Buy a caravan, motorhome, or houseboat
Not every type of property is automatically charged stamp duty. If you buy a certain kind of dwelling, you won’t be charged any stamp duty, regardless of how much it costs to buy. Properties included in this exemption are motorhomes, mobile homes, caravans, and houseboats.
2. If the property is intended to be used by a family member, put the deed and mortgage in their name
Suppose you were hoping to buy a second property for a family member to live in. In that case, you’ll be able to avoid paying second-home stamp duty by making sure your name isn’t on the deed. There are 3 main ways this can be achieved:
Give them money for the deposit as a gift
If you’re keen to buy a home for a child or elderly relative, one way to avoid paying second-home stamp duty on it if you already own property is to gift your family member money for the deposit. Provided they then pass the requirements to apply for a mortgage, the property (and the mortgage for it) will be totally in their name. It will be their primary residence rather than your second home.
Apply for a family offset mortgage
This sort of mortgage is offered by a handful of banks, and it works by letting you place a chunk of your own savings into a particular bank account. The lender will then use that money as a deposit for a family member to buy a house and apply for a mortgage. The money in the savings account won’t be touched. Instead, it’ll sit safely for several years, and you’ll get it back, provided your family member has been consistent with their monthly repayments.
Sign on as a guarantor
You may have come across this term when renting. A guarantor is essentially a third party who can guarantee a mortgage or loan on someone else’s (for example, a family member’s) behalf. As a guarantor, you won’t be the legal owner of a property (meaning it won’t be classed as a second home). You will, however, agree to take on the responsibility of covering the mortgage repayments if your family member is unable to pay them themselves for whatever reason.
3. Purchase property worth less than £40,000
Another good way to get around paying second-home stamp duty tax is to buy a property worth less than £40,000. This might be achievable depending on where you’re buying in and the size of the property.
4. Purchase a buy-to-let as a first-time buyer
While it’s technically impossible for a first-time buyer to purchase a second home, they could still buy a buy-to-let as an investment.
Buy-to-lets are usually something people purchase after their primary residence, so they are typically charged second-home stamp duty. If you’re a first-time buyer purchasing one, you won’t have to pay second-home stamp duty. What’s more, you should be able to benefit from first-time buyer stamp duty rates.
The only exception to this is buying a buy-to-let with someone who is not a first-time buyer. You’ll then be treated, for tax purposes, as one unit, meaning you’ll be liable to pay the second-home stamp duty.
Second-home stamp duty refunds
If you’re not able to avoid second-home stamp duty rates altogether, you might still be able to get some money back through a tax refund.
While this option doesn’t prevent you from paying stamp duty on your second home, a refund does allow you to claim back the stamp duty on your first property. That’s because legally, in all parts of the UK, you’re allowed to claim back the stamp duty on your primary residence if you sell it within 3 years of purchasing a second property.
This is pretty typical, especially for those who have bought another home to move into but have been unable to sell their previous residence before they complete on the purchase. Be careful with timings; if the sale of your original property goes over the 3-year limit – even by one day – you won’t be able to apply for a stamp duty refund.
To claim back your stamp duty tax, you’ll need to submit your details through HMRC. These include information about both properties, the stamp duty for the property you’re selling and the amount you want to claim. You’ll then usually be issued a refund into your account within 15 working days of HMRC receiving your refund application.
What if it’s just my partner who owns another property?
While this might seem like a nice little loophole, it unfortunately is not. Suppose you’re buying a property with someone else and one of you already owns a house or flat. In that case, the new property will automatically be classed as a second home for both of you.
There are also several other occasions when the government might consider you to own 2 properties. This includes:
If you’ve inherited a home and already own a property
It’s not uncommon for people to receive property in a family member’s will. Nevertheless, unless you’ve inherited less than a 50% share of it, you’ll have to pay second-home stamp duty if you already own a home.
If you own a house or flat abroad
Just got back from living abroad and don’t want to sell your home there? If you decide to buy somewhere in the UK as well, it will be considered a second home, even if your other property is located in another country with different tax rules.
If you get a divorce but don’t set up a Property Placement Order
This legal order lets a divorcee transfer ownership of the marital home to the other divorcee. The first party is then free to buy another home without having to pay second-home stamp duty. Should you fail to include a Property Placement Order as part of your divorce settlement, then you’ll likely have to pay the second-home stamp duty rate. Luckily, it’s possible to claim a refund if you then go on to sell your share of your former marital home.
Another significant cost to consider when buying a property is your mortgage. Find out more about the options available to you and how the process works as a whole on our extensive mortgages guide hub.