Stamp Duty on a Second Home
From April 2016, property buyers in England and Northern Ireland that are buying an additional property, or are buying a home and may end up owning two properties, even temporarily, will have to pay an additional 3% SDLT on top of each Stamp Duty band. HMRC calls this charge the ‘Higher Rates on Additional Dwellings’ or ‘HRAD’. Here’s everything that you need to know.
Stamp Duty explained
Stamp Duty Land Tax (or SDLT as it is commonly abbreviated) is a UK tax that you may be liable to pay if you are buying a property.
The amount the buyer pays is determined by various factors, including the property price, buyer type - notably first-time buyer, and if the property will be the buyers’ only residence or a second home or investment. The rate is calculated according to different bands, dependent on the price of the property and can be determined using a Stamp Duty calculator, like this one.
What is a second home buyer?
Should you be buying a second property as a Buy-to-Let investment, for a holiday home, as a commuter pied-a-terre or for any other purpose, you will be classified as a second home buyer and will have to pay the additional stamp duty charge for second homes.
You have to pay the extra rate even if the property you already own is abroad. It also applies if you own a share in a property.
It is important to note that the rules do not apply only to you, as the buyer, but also to anyone you’re married to or buying with. Married couples and civil partners are classified as a single unit and, for the purposes of the higher rates, can only own one main residence between them at any one time. Similarly, if two or more people are purchasing a property jointly, if any of the joint purchasers has two or more properties at the end of the transaction date and they are not replacing a main residence, the whole of the new property purchase will be subject to the higher rates of SDLT.
Higher Rates on Additional Dwellings (HRAD) explained
HRAD is the term given to the 3% surcharge added to the standard rate of SDLT, payable on the purchase of a second home, as explained above.
As with the standard rates, the calculation of SDLT on additional dwellings is based on the purchase price of the property, including anything that is permanently attached to it. If the price you pay includes extras that are not permanently attached to the property such as carpets or furniture then the value of these items is excluded from the calculation.
For example, if you buy a home for £400,000 but the price includes £20,000 for furniture and carpets, the Stamp Duty calculation will be based on the net figure of £380,000.
Are there exclusions from the HRAD Stamp Duty for second homes?
There are a few cases where you won’t have to pay the additional SDLT rate.
Firstly, anyone buying a home they intend to live in won’t pay the additional rate provided they have sold their existing home by the end of the day of the new property purchase transaction or no more than three years prior to the new property purchase transaction. In the event of a delay in the sale of your previous main residence that causes you to own more than one property temporarily, the higher rate will still apply but you can request a refund provided the sale of the old residence occurs within 3 years of the purchase of the new residence. In this case you must apply to HMRC for the refund within twelve months of the purchase of the new residence or the sale of the old residence whichever is later.
If the property is a mixture of residential and non-residential, for example a shop with a flat above it, the whole transaction is subject to lower commercial rates of SDLT.
Property assets which are ‘movable’ such as a caravan, mobile home or houseboat, are not classified as a second home, unless they become a permanent fixture.
Finally, any property you own that is valued at less than £40,000 is considered ‘low value’ and is ignored for the purposes of HRAD.
How much SDLT will I pay on my second home?
The amount of SDLT you ultimately pay depends on the purchase price of the property.
As a second home buyer you will pay the standard rate plus a 3% surcharge.
The easiest way to work out how much SDLT you will pay is by doing an online calculation which you can access here.
SDLT Holiday for second home buyers
In July 2020, the Chancellor announced that the stamp duty tax threshold was being temporarily raised from £125,000 (standard rate) to £500,000 until 31 March 2021, and this date was later extended to 30 June 2021.* The good news is that second home buyers will be able to take advantage of this government incentive.
So for property values up to £500,000 the standard rate of stamp duty will be 0% and you will only have to the pay the 3% surcharge.
Extending the Stamp Duty Holiday with Galliard Homes
Since the success of the Stamp Duty Holiday came to an end, Galliard Homes has decided to extend this fantastic incentive on selected new purchases that exchange up until 31st January 2022 by deducting any SDLT up to the value of £25,000, which would ordinarily be payable, from the completion sums which are due.*