Considering buying a second home? Makes you experienced in the market enough. Experience goes to the market with poise, wisdom, and control. You can expect things using your first-time journey and know what to do differently and better. There also might be some roads you only have to walk once. Owning a first home might make you qualified to avoid making some legal payments all over again. Stamp Duty Land Tax(SDLT) is one of them. This piece tells you how to avoid Stamp Duty Land Tax(SDLT) on second home, so that your experience comes as handy as it can.
This piece takes you through all concepts and considerations involved so that your experience comes as handy as it can!
What is Stamp Duty Land Tax(SDLT)?
Stamp Duty Land Tax(SDLT) is something you could be required to pay when you purchase real estate. There are specific thresholds to stamp duty, so you won’t have to pay stamp duty if you purchase a home that is below one.
Quick Update: Stamp Duty Land Tax(SDLT) thresholds increased on September 23, 2022, so that buyers will pay less tax than they did previously. Some buyers will completely avoid paying Stamp Duty Land Tax(SDLT).
Depending on the region of the UK where you purchase a property, you can find this tax referred to as:
- Stamp Duty Land Tax (SDLT) in England and Northern Ireland
- Land and Buildings Transaction Tax (LBTT) in Scotland
- Land Transaction Tax (LTT) in Wales
You must include this expense in your budget unless the primary property is valued below a specific amount (usually £125,000 in England and Northern Ireland, £145,000 in Scotland, or £180,000 in Wales), or there is a Stamp Duty Land Tax(SDLT) vacation in effect.
What is the bracket of second home Stamp Duty Land Tax(SDLT)?
This context is important before we delve into how to avoid Stamp Duty Land Tax(SDLT) on second home. The first thing to understand about Stamp Duty Land Tax(SDLT) rates is that they differ from rates for primary residences (or buy to let properties). For starters, there is no minimum threshold for when you must pay Stamp Duty Land Tax(SDLT), unless the property you buy values at less than £40,000.
Once more, the thresholds and amounts of Stamp Duty Land Tax(SDLT) will vary depending on where you purchase in the UK. Find listed below the rates for England and Northern Ireland, Wales, and Scotland to give you a general estimate of what you could be required to pay.
England and Northern Ireland second-home Stamp Duty Land Tax(SDLT) rates
Those buying a second home in England or NI will find the Stamp Duty Land Tax(SDLT) 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 get my second home without paying Stamp Duty Land Tax(SDLT)?
Purchasing a second house can be highly expensive due to Stamp Duty Land Tax(SDLT). Typically, you will be required by law to pay it as part of the acquisition of property. However, there are a few specific exclusions that you might be able to use to get out of paying it.
Additionally, if you decide to sell your first house in the future, you might be able to get some of the Stamp Duty Land Tax(SDLT) back.
How to Avoid Stamp Duty Land Tax(SDLT) on Second Home
The above backgrounder should have equipped you with a sound knowledge of the domain. Now, let’s directly talk about how to avoid Stamp Duty Land Tax(SDLT) on a second home.
1. Put the deed and mortgage in the name of the family member who will utilise the property.
Let’s say your goal was to purchase a second home for a member of your family to live in. By making sure your name isn’t on the deed in such a situation, you’ll be able to save money on second-home Stamp Duty Land Tax(SDLT). There are three main techniques to accomplish this:
Give them money for the deposit under the label of gift.
Gifting your family member money for the down payment is one approach to avoid paying second-home Stamp Duty Land Tax(SDLT) if you want to purchase a home for a child or elderly relative and you already own property. The property (and the mortgage for it) will be entirely in their names should they subsequently meet the prerequisites to apply for a mortgage. It won’t be your second house; it will be their primary residence.
Obtain a family offset mortgage.
Few banks provide this type of mortgage, and it functions by allowing you to deposit some of your personal savings into a specific bank account. Once a family member has purchased a home and applied for a mortgage, the lender will take the money as a down payment. The savings account’s funds won’t be accessed. Instead, it will remain in a secure location for a few years before being returned to you, assuming your relative has been consistent with their monthly repayments.
Sign as a guarantor.
This phrase may have come up when you were renting. In essence, a guarantor is a third party who can guarantee a mortgage or loan on behalf of someone else (for instance, a family member). You won’t have legal ownership of a property as a guarantor; thus, it won’t be considered a second home. However, you will agree to assume the burden of making the mortgage payments if your family member is unable to do so for any reason.
2. How to avoid Stamp Duty Land Tax(SDLT) on second home if it is a camper, RV, or houseboat.
Not all real estate is subject to automatic payment of Stamp Duty Land Tax(SDLT). Regardless of how much it costs to purchase, you won’t be charged any Stamp Duty Land Tax(SDLT) if you purchase a specific type of dwelling. Vehicles like RVs, mobile homes, caravans, and houseboats are excluded from this rule.
3. Invest in real estate for under £40,000.
Purchasing a property for less than £40,000 is another smart move to make if you want to avoid paying second-home Stamp Duty Land Tax(SDLT). Depending on the area you’re buying in and the size of the property, this might be possible.
4. Invest your first money in a buy-to-let property.
A first-time buyer could still acquire a buy-to-let as an investment even though it is technically impossible for them to buy a second house.
Since people frequently purchase buy-to-lets after their primary homes, they are typically subject to second-home Stamp Duty Land Tax(SDLT). First-time buyers who purchase one won’t be required to pay second-home Stamp Duty Land Tax(SDLT). Additionally, you ought to be able to take advantage of first-time buyer Stamp Duty Land Tax(SDLT) rates.
The sole exemption to this rule is when a first-time buyer purchases a buy-to-let with someone else. After that, you’ll be considered one unit for tax reasons, which means you’ll have to pay the second-home Stamp Duty Land Tax(SDLT).
Refunds of second home Stamp Duty Land Tax(SDLT)
Even if you can’t completely avoid paying second-home Stamp Duty Land Tax(SDLT) rates, you might be able to earn a tax refund to help you out.
While a refund enables you to recoup the Stamp Duty Land Tax(SDLT) you paid on your first house, this alternative does not stop you from paying it on your second home. This is so that you can lawfully, in every region of the UK, claim back the Stamp Duty Land Tax(SDLT) you paid on your primary dwelling if you sell it within three years of buying a second property.
This may not be a direct answer to how to avoid Stamp Duty Land Tax(SDLT) on a second home, but it is still relevant. It is rather prevalent especially for those who have purchased a new house to relocate to but have been unable to sell their old property in time to close on the new one. Time the sale of your original property carefully because you won’t be able to request a Stamp Duty Land Tax(SDLT) refund if it exceeds the 3-year threshold even by one day.
You must submit your information to HMRC to request a refund of your Stamp Duty Land Tax(SDLT). These comprise details on both properties, the amount you intend to claim as well as the Stamp Duty Land Tax(SDLT) for the property you’re selling. After HMRC receives your refund application, you’ll typically receive a refund into your account within 15 working days.
What qualifies as a second home in the UK?
Any home you possess besides your primary abode is typically referred to as a second home. People purchase second houses for a variety of reasons, including investment and buy-to-let purposes, vacation properties, etc.
What if my partner is the only one with a second home?
Even though this would appear to be an inviting little loophole, it is not. Let’s say you and a partner are purchasing a property, and one of you already owns a home or flat. The new property will thereafter be a second home for both of you.
What are the UK tax repercussions of purchasing a second home?
You’ll pay Stamp Duty Land Tax(SDLT) at usual rates plus an additional 3% on each band if you purchase a second home. Because they both qualify as second dwellings, the Stamp Duty Land Tax(SDLT) rates for second houses and buy-to-let properties are the same.