In the 2021/22 year, the number of second homes in England hit 809,000, increasing by about 100,000 homes from 2010/11. And with the average UK house price now at £282,000, buying a second property can incur significant stamp duty fees. As a property investor, being aware of the latest stamp duty rules is essential to make informed investment decisions and avoid unexpected tax bills.
This guide offers an overview of the stamp duty on second homes to help you navigate the complex regulations in 2024. With changes to stamp duty thresholds and surcharges in recent years, the calculations aren’t completely straightforward, but we aim to simplify it.
We’ll walk through examples covering the key considerations when paying stamp duty, how to avoid stamp duty on second homes, and how to calculate how much stamp duty you need to pay. Use this as your go-to reference for stamp duty planning when investing in 2024.
Key Summary
- In the UK, stamp duty for second homes includes a 3% surcharge on standard rates, increasing the total tax for properties in England, Northern Ireland, Scotland, and Wales with different rates by region.
- Stamp Duty Land Tax (SDLT) on a second home must be calculated based on the price band and paid to HMRC within 14 days of property purchase completion to avoid penalties.
- New rules in 2024 and 2025 will impact second home stamp duty, including higher SDLT rates and changes to Multiple Dwellings Relief, affecting the total tax for investors.
- Strategies like transferring ownership to a family member or purchasing in a spouse’s name, along with exemptions for mixed-use properties and inherited homes, can help reduce stamp duty liabilities on second homes.
- International buyers face an additional 2% SDLT surcharge on top of second home rates, but structuring investments with UK partners may help reduce costs.
What Is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax on property and land purchases in England and Northern Ireland. As an investor, you must pay SDLT when you buy a residential property, whether it is your primary home or a rental investment property. The tax amount depends on the portion of the purchase price that falls within each tax band.
SDLT is a self-assessed tax, meaning you must calculate the amount owed and pay it to HM Revenue & Customs within 14 days of completing your property purchase. As property investors, it is critical to understand SDLT to ensure you budget properly for your investment and avoid penalties for late payment or underpayment. With prudent planning, you can make strategic property investments that maximise returns even considering this tax.
SDLT rates differ depending on the cost of the property as well as whether it’s your first property or your second. Continue reading to learn more about how second property stamp duty rates are calculated.
Tip: If you’re buying a second home to use as a buy-to-let, check out our guide discussing tax on rental income and rental income expenses allowed.
Current SDLT Rates on Second Homes in the UK
As an investor looking to purchase a second home in the UK, it is important to understand the Stamp Duty Land Tax (SDLT) rates that will apply. In England and Northern Ireland, second homes are subject to an additional 3% SDLT surcharge on top of the standard rates. In Scotland and Wales, the surcharge is 6% and 4%, respectively.
England and Northern Ireland
In England and Northern Ireland, SDLT on residential property purchases that count as a second home is charged as follows:
- Up to £250,000: 0% + 3% (3%)
- The next £675,000 (The portion from £250,001 to £925,000): 5% + 3% (8%)
- The next £575,000 (the portion from £925,001 to £1.5 million): 10% + 3% (13%)
- The remaining amount (the portion above £1.5 million): 12% + 3% (15%)
For second homes, the rates increase by 3% at each band. For example, a second home purchase of £600,000 would incur total stamp duty bill of £35,500, i.e., [(£250,000 x 3%) + (£350,000 x 8%)].
Note: Non-residents are taxed an extra 2% surcharge if purchasing a residential property in Northern Ireland or England. We’ll discuss more on this later in this article.
Scotland and Wales
In Scotland and Wales, the Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) apply respectively. The rates are similar to SDLT, but the surcharge on second homes is 6% and 4%, respectively.
In Scotland, you only pay the 6% surcharge or Additional Dwelling Supplement (ADS) if your second property price is up to £40,000.
The rates are as follows:
- £40,000 to £145,000: 6%
- £145,001 to £250,000: 2% + 6% (8%)
- £250,001 to £325,000: 5% + 6% (11%)
- £325,001 to £750,000: 10% + 6% (16%)
- Over £750,000: 12% + 6% (18%)
In Wales, you only pay the 4% surcharge or higher LTT rates for residential property worth more than £40,000.
The rates are as follows:
- The portion up to and including £180,000: 4%
- The portion over £180,000 up to and including £250,000: 7.5%
- The portion over £250,000 up to and including £400,000: 9%
- The portion over £400,000 up to and including £750,000: 11.5%
- The portion over £750,000 up to and including £1,500,000: 14%
- The portion over £1,500,000: 16%
A £600,000 second home in Scotland would incur LBTT of £60,650, i.e., [(£105,000 x 8%) + (£75,000 x 11%) + (£275,000 x 16%)].
In Wales, LTT on the same property would be £48,950, i.e., [(£180,000 x 4%) + (£70,000 x 7.5%) + (150,000 x 9%) + (£200,000 x 11.5%)].
In summary, as an investor in UK property, it’s critical to understand the SDLT, LBTT and LTT rates that apply based on the location and usage of the property.
The 2nd home stamp duty can significantly impact the total tax due, so investors must go into any purchase with full knowledge of the costs. In the next section, we’ll explain how to calculate SDLT on a second property purchase.
How to Calculate SDLT on a Second Property Purchase
In England and Northern Ireland, for example, an additional 3% surcharge on the standard SDLT rates is applied when buying a second residential property.
If you purchase a second home for £400,000, the standard SDLT rate on the portion from £250,001 to £925,000 is 5% of the purchase price. With the additional 3% surcharge, the total SDLT payable would be £12,000 at an 8% rate (i.e., 8% of £150,000 = £3,750).
A stamp duty calculator generally does the following:
- Find the standard SDLT rate for the price band your property falls under.
- Add the 3% (England) or 6/4% (Scotland/Wales) surcharge to the standard rate to get the total SDLT rate for your second property.
- Get the value that falls in between the property purchase price band.
- Multiply the total SDLT percentage rate by the value that falls within the price band. The result is the total SDLT liability you will need to pay.
Again, you must pay this total SDLT amount within 14 days of completion of the property purchase. Late payment will result in penalties and interest charges. When calculating your SDLT, keep in mind that married couples and civil partners are treated as a single unit. The surcharge will apply if either spouse already owns another residential property.
However, some upcoming changes may affect the 2nd property stamp duty rate; check out the following section to remain informed!
3 Stamp Duty Land Tax Changes for Second Homes in 2024
The government has announced three major changes to Stamp Duty Land Tax (SDLT) that will significantly impact investors purchasing additional properties. These include the abolition of Multiple Dwellings Relief, reversal to higher SDLT rates, and changes to nominee arrangements.
1. Abolition of Multiple Dwellings Relief
From June 1, 2024, Multiple Dwellings Relief (MDR) will be abolished. This relief was introduced to reduce the SDLT costs for residential properties that were bought in bulk to improve the privately rented housing supply. Expect to pay more on SDLT once this abolition takes effect from June 1st.
2. Higher SDLT Rates
SDLT rates will revert to pre-September 2022 levels on March 31, 2025. In September 2022, the government reduced SDLT rates in England and Northern Ireland to stimulate the market. However, for second homes, SDLT rates will return to previous levels in 2025. This higher tax burden aims to discourage individuals from purchasing additional homes for investment purposes.
3. Changes to Nominee Arrangements
From Spring 2024, individuals purchasing new leases using nominee or bare trust arrangements in England and Northern Ireland will now be able to claim relief. This was previously not possible. For those looking to reduce SDLT costs, this is a great opportunity.
For those still wishing to invest in UK property, the next 2 years present an opportunity for buying a second home; stamp duty rates may become less favourable in the future. However, investors must go in with their eyes open to the additional costs that will apply from 2024 onward. The next section walks through other important strategies to cut down or avoid SDLT costs on second homes.
How to Avoid Second Home Stamp Duty
As an investor looking to purchase a second home, the prospect of paying SDLT on the full purchase price can significantly impact your returns. However, there are legitimate ways to mitigate or avoid paying the additional 3% SDLT surcharge, including a transfer of ownership to a family member and purchasing in your spouse’s name.
1. Transfer ownership to a family member.
One method is to transfer ownership of the property to a family member with no existing property ownership, such as an adult child. Since they’ll not own any other residential property, they will pay SDLT at the standard residential rates, saving you the 3% surcharge. You can still occupy and benefit from the property, though legal ownership will be in their name.
2. Purchase in spouse’s name.
If you purchase the property solely in your spouse’s or civil partner’s name, provided they do not own any other residential property, they will pay SDLT at the standard residential rates. You can both still live in and benefit from the property.
While the stamp duty surcharge can seem an unfair penalty, SDLT on additional residential properties exists to make property investment less attractive to large-scale investors and increase the availability of housing stock for owner-occupiers. However, by fully understanding the legitimate exemptions and reliefs available, strategic investors can still mitigate their SDLT exposure and achieve strong returns from UK property investment.
Still, there are exceptional circumstances where you can be exempted from paying SDLT for second homes. These exemptions are outlined in the next section.
4 SDLT Exemptions for Second Properties
UK property investors seeking to purchase a second home may be eligible for certain Stamp Duty Land Tax (SDLT) exemptions under specific circumstances, including:
- Inherited property
- Mixed-use properties
- Lower value properties
- Sold previous main residence
1. Inherited Property
Properties that direct descendants inherit are exempt from the 3% SDLT surcharge for second homes, provided the property was used as the only or main residence of the deceased.
2. Mixed-Use Properties
Mixed-use properties, such as homes with annexes or those used for both residential and commercial purposes, are exempt from the 3% SDLT surcharge for second homes. To qualify as mixed-use, a significant portion of the entire property must be used for commercial purposes. Proper planning permissions and changes of use may need to be obtained to benefit from this exemption.
3. Lower-Value Properties
Properties with a purchase price below £40,000 are exempt from the additional 3% in stamp duty paid on second homes. While the savings may seem minimal, for investors purchasing multiple lower-value properties, this exemption can add up to substantial tax savings.
4. Sold Previous Main Residence
If a second home is purchased but the investor’s previous main residence is sold or given out within 36 months, a refund of the higher stamp duty rates paid on the second home may be claimed. The investor must live in the previous property as their main residence up until the point of sale to qualify for a refund. Strict deadlines apply, so investors should claim refunds as early as possible to avoid missing eligible savings.
Tip: Check out our guide on fees you pay when selling a house in the UK to ensure a seamless sale process!
With proper planning, the higher stamp duty for second-home buyers can often be mitigated or avoided altogether, albeit legally, through these exemptions. Staying up-to-date with changes to SDLT legislation is key to navigating this process successfully. You may also be eligible for certain SDLT relief schemes; continue reading to learn more.
SDLT Relief Schemes for Second Home Buyers
As a second home buyer in the UK, you may be qualified for the following SDLT relief scheme:
- Multiple Dwellings Relief
- Annexes
- Professional Property Developers
1. Multiple Dwellings Relief
If you are purchasing more than one dwelling in a single transaction or a series of linked transactions, you may be eligible for Multiple Dwellings Relief (MDR). This relief reduces the SDLT on the purchase of multiple dwellings by removing the 3% higher rate surcharge on the purchase of additional dwellings. To qualify for MDR, the properties must be purchased at the same time or must come with a commercial element like offices and shops.
2. Annexes
If your second home purchase includes an annexe, you may be exempt from the 3% higher rate SDLT surcharge. The annexe must have its own facilities for basic domestic living, like bathrooms and kitchens. The annexe must also have its own front door to be eligible.
3. Professional Property Developers
Professional property developers and traders who are purchasing a property for the sole purpose of residential development and resale may be eligible for relief from the higher rates of SDLT. To qualify as a property developer, you must carry out property development on a commercial basis and have a realistic intention of selling the properties at a profit once developed. Property development must also form a significant part of your overall business activities to qualify for this relief.
In summary, while most second home buyers will be subject to the standard rates of SDLT, including the 3% surcharge on the total purchase price, certain exemptions and reliefs may apply based on your circumstances and intended use of the properties. It’s best to check with HMRC to determine if you qualify for any SDLT relief before proceeding with your property purchase.
However, the stamp duty on second homes for international investors differs slightly. Continue reading to learn more about these differences.
SDLT Implications for International Property Investors
As an international property investor, you should be aware of the Stamp Duty Land Tax (SDLT) implications when purchasing UK residential real estate. Generally, international investors pay stamp duty at a 2% surcharge on the normal stamp duty rate. This is different from the additional 3% surcharge that you will need to pay for a second property.
2% SDLT Surcharge
For international investors buying residential property in the UK, there is an additional 2% SDLT surcharge on top of existing SDLT rates. This means if you purchase a £250,000 buy-to-let property as an international investor, you won’t qualify for the exemption threshold and would need to pay a 2% surcharge. If the purchase is an additional purchase, then you’re paying an extra 3%, making your total SDLT rate 5%.
These higher rates and surcharges aim to make property investment through companies less attractive and level the playing field for UK-based homebuyers competing in an already supply-constrained market. However, there are still property investment opportunities for international buyers if you go in with realistic SDLT expectations.
Reducing Your SDLT Rate as an International Investor
One option to reduce your SDLT rate is to consider joint ventures with UK partners, as this may enable you to benefit from lower SDLT rates in some cases. It is best to seek professional tax advice to determine the optimal investment structure based on your unique circumstances.
There are also designated “Opportunity Zones” in the UK where you can invest in residential property through funds or syndicates and benefit from tax deferrals under certain conditions. Reach out to a property investment advisor to learn more.
While higher SDLT for second homes and surcharges do present challenges, there are still worthwhile property investment opportunities in the UK if you plan well and obtain sound professional guidance. By going in with realistic expectations around taxes and being strategic in their investment approach, international buyers can successfully navigate SDLT implications and build profitable UK property portfolios. For more information, contact Baron & Cabot.
Frequently Asked Questions
How much is stamp duty on a 2nd home?
When purchasing a second home in the UK, the Stamp Duty Land Tax (SDLT) starts at 3% on properties up to £250,000. Between £250,001 to £925,000, the rate is 8%. For the portion from £925,001 to £1.5 million, it’s 13%, and any value above £1.5 million incurs a 15% rate.
How do I avoid stamp duty on a second home?
To avoid stamp duty on a second home, consider the property’s value, as lower-priced homes may be exempt. Also, if you’re not married or in a civil partnership, buying under a sole name could sidestep the tax, but it’s essential to weigh all legal and financial implications.
Why is stamp duty so high on second homes?
Stamp duty is higher on second homes because they’re considered additional properties beyond your main residence. This categorisation triggers a higher tax rate, reflecting the ownership of multiple properties and aiming to moderate the housing market by discouraging multiple home purchases.
Conclusion
The laws governing stamp duty on second homes in the UK are complex and ever-changing. With higher tax rates in recent years and more scrutiny on non-primary residences, purchasing an additional property requires careful financial planning.
By understanding stamp duty calculations, utilising exemptions when possible, and factoring taxes into your investment goals, you can make informed decisions about second home investments in 2024 and beyond. With the right preparation and expert guidance, your property investment dreams in the UK can still become a reality. Contact an expert now.
Disclaimer: Any information provided by Baron & Cabot does not constitute financial advice and is for educational purposes only.
