How To Avoid Stamp Duty On A Second Home
SDLT: You may be interested in our main Article on Stamp Duty Land Tax rates and allowances.
You may also be interested to know how more about our services to help reduce your Stamp Duty Land Tax liability when you sell a buy to let property investment.
The frequently asked questions about how to avoid Stamp Duty on a second home
As property accountants, we are regularly asked how to avoid Stamp Duty on a second home. We will look to answer the below questions in this Article.
“Are you paying too much Stamp Duty?”
“What are the basics of Stamp Duty?”
“How can I avoid Stamp Duty?”
“What properties are exempt from Stamp Duty?”
“When does Stamp Duty have to be paid?”
“What is the Stamp Duty for second homes?”
“Can I claim Stamp Duty relief?”
“Is SDLT payable when purchasing a buy to let property?”
“How does this affect our American readers?”
Are paying too much Stamp Duty?
Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.
There are many reasons why people pay far more Stamp Duty than they need to.
This is because:
– They do not know what they do not know.
– They have not spoken to a tax specialist to go through their situation to see what available tax reliefs are available to them.
– Their accountants or solicitor are not aware of the many reliefs that are available to their clients and are not taken advantage of.
– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.
Stamp Duty Land Tax Calculator
This SDLT calculator will tell you how much is to pay and how to reduce it further.
What are the basics of Stamp Duty?
As property accountants serving thousands of UK landlords that purchase buy to let properties & homes, we know that their main priority is usually maximising wealth while minimising tax.
One of the most common ways in which buy to let property investors seek to reduce their tax bill is by mitigating Stamp Duty.
Stamp Duty was first introduced in England in June 1694, during the reign of William III and Mary II, under “an Act for granting to their Majesties several duties upon vellum, parchment and paper, for four years, towards carrying on the war against France.”
Stamp Duty Land Tax, a transfer tax derived from stamp duty, was introduced for land transactions from 01 December 2003.
Stamp Duty Land Tax (SDLT) receipts in the UK amounted to £8.66 billion in the tax year 2020-21.
SDLT is a tax paid by the buyer of residential property in the UK.
This includes the purchase of a leasehold property, a freehold property, or the transfer of land or property in exchange for money.
It is also payable if you purchase property through a shared ownership scheme.
Stamp Duty is the only second home tax you will pay at the time of purchase.
Up until 30th June 2021, stamp duty is paid when the purchase price exceeds £500,000. From 1st July 2021, the threshold will reduce to £250,000 until 30th September.
From 1st October 2021, the Stamp Duty Land Tax threshold will be £125,000.
Have a question about property investments, tax or being an expat?
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How can I avoid Stamp Duty?
If you purchase a property with your name going onto the deeds and you own another property, then Stamp Duty applies.
There are ways that Stamp Duty can be reduced, mitigated or avoided.
Gifting a deposit on a property is an option. This means you would not be a joint owner and Stamp Duty on the second home would not apply.
Acting as a Guarantor would prevent you from being classed as owning the property, which would mitigate SDLT.
Another way to avoid Stamp Duty on a second home is to get a family offset mortgage.
Savings go into an account with the mortgage lender. They then act as a deposit, but you retain ownership of the money.
Other ways to reduce Stamp Duty include:
– Negotiate on the property price
– Transfer a property
– Purchase a cheaper property
– Apply for a Stamp Duty refund
– Pay for fixtures and fittings separately
– Get Stamp Duty relief for first-time buyers
– Build your own second home
Anyone buying a second residential property will have to pay an additional 3% on any residential property with a value of £40,000 or more.
Three ways in which we advise property investor clients to avoid SDLT are:
– Identify chattels to reduce SDLT. They are items of tangible moveable property that are not fixed or part of the land on which they sit. These items are not subject to Stamp Duty Land Tax.
– Claim Multiple Dwellings Relief (Linked Transactions). This is a way to reduce Stamp Duty when purchasing buy to let properties. To claim a discount, purchase two or more residential properties from the same vendor. This is commonly known as a Linked Transaction.
– Stamp Duty Land Tax is charged on land and property. Buying shares in a property Limited Company rather than individual properties attract a far lower level of tax at 0.5% compared to paying the scaled level of SDLT on several properties plus the 3% surcharge.
HMRC has provided clear guidelines on residential property rates concerning Stamp Duty which is worth reviewing.
What properties are exempt from Stamp Duty?
Anyone buying an additional residential property will have to pay the Stamp Duty for second homes.
This applies whether you are buying a second home as an investment buy to let, as a holiday home, or for any other purpose.
Stamp Duty is owed when you buy a second home abroad, and also applies if you own shares in a property in the UK.
Some properties are exempt from Stamp Duty, including:
– Purchasing a houseboat, caravan or mobile home. The exemption applies irrespective of the value.
– Purchasing a second home worth less than £40,000.
– Purchasing a new main residential home, providing you sell your current home or sell your current home into a limited company
An article we’ve written on Stamp Duty Land Tax for property investors provides useful additional information.
When does Stamp Duty have to be paid?
HMRC will require Stamp duty to be paid within 14 days from the date of completion of a property sale.
The majority of conveyancing solicitors will want this paid to them sooner to reduce the risk of non-payment.
Stamp Duty liability is documented on an SDLT1 Form, which will be prepared by the conveyancing solicitor.
Failure to pay Stamp Duty to HMRC will result in a fine.
Whether or not Stamp duty is payable, HMRC will require an SDLT tax return to be received within four weeks of the transaction completion.
The fine on this occasion is not for failure to pay the tax but for failure to submit the return.
If any of the parties purchasing a property own an interest in any other property anywhere in the world, an additional 3% SDLT is payable on top of the normal rate.
There are different Stamp Duty rates for married couples or those in a civil partnership. If you do not have an interest but your partner does, then you still have to pay the higher rate.
HMRC provides clear information on Stamp Duty Land Tax for those looking to buy a second home.
To find out more about Stamp Duty Land Tax Higher Rates, our article will provide a useful additional reading.
Speak to one of our property tax accountants today to ensure you are tax-efficient around Stamp Duty.
What is the Stamp Duty for second homes?
Stamp Duty rates are different depending on whether you are buying a second home in England & Northern Ireland, Wales or Scotland.
The amount of Stamp Duty payable is also different depending on the purchase price of the property.
From 1st July 2021, the Stamp Duty threshold will reduce from £500,000 to £250,000 on any residential property purchased in the UK until 30th September 2021.
From 1st October 2021, the threshold will revert to £125,000.
If you sell your own home and buy another home, you will not have to pay the additional 3% on that property. We advise many of our clients to sell their current home to a third party or to their pwn limited company to avoid this SDLT higher rate.
Reclaim the 3% SDLT higher rate on a second home
The 3% SDLT higher rate you have paid on purchasing a replacement home may be claimed back if you sell the previous home between 0 to 36 months after buying your replacement home by completing a HMRC form
You can claim the 3% SDLT surcharge back yourself (ie not involve solicitors) provided that you have sold (the sold date is usually the date that the purchase completed – if you’re unsure please check with your agent or solicitor if one acted for you) your previous home within 3 years of purchasing your replacement home and:
– The sale of the previous home is less than 12 months after the purchase of the replacement home, or
– The filing date on the SDLT return for the replacement home is less than 12 months ago, whichever comes later.
If your previous home sale is more than 12 months but less than 36 months after your replacement home purchase and the SDLT Form filing date on your previous home is more than 12 months ago, you can still claim back the 3% SDLT surcharge by using a solicitor or the Optimise filing service.
The different Stamp Duty rates for property investors to bear in mind forms part of a detailed article we’ve written as a guide.
HMRC has also produced clear guidance on higher rates of Stamp Duty Land Tax.
Book a consultation with one of our tax accountants to discuss how to avoid Stamp Duty further.
Can I claim Stamp Duty relief?
Stamp Duty Land Tax relief is available under certain conditions, as is SDLT relief.
If you do not own any property but decide to purchase a buy to let property then you are not liable to pay Stamp Duty for second homes, because you would only own one property.
A first-time buyer can also claim SDLT relief. If you are a couple, both of you must be first-time buyers to benefit from first-time buyer SDLT relief. This is one good reason not to get married.
You will have to pay Stamp Duty if you have a share in another property, have inherited a property, or are buying a property with someone else who already owns a property.
Buyers are entitled to a Stamp Duty refund if they bought a second home and paid the 3% Stamp Duty charge, but sell their original property within three years. We have already discussed this at length above.
As far as paying Stamp Duty is concerned, the property you currently live in is considered by HMRC to be the main residence.
If you are not exempt from paying Stamp Duty on a second home, it is still possible to claim a Stamp Duty refund under the following circumstances:
– You sold your main residence within three years of purchasing the new one.
– You paid Stamp duty for the second home by mistake.
– You apply for the Stamp Duty refund 12 months after the filing date of your SDLT return.
– You apply for the Stamp Duty refund three months after selling your main residence.
If you wish to claim a Stamp Duty refund, tax details must be submitted to HMRC.
This can be done online, with the inclusion of details such as amount being claimed back, total Stamp Duty paid, address of the old main residence sold, and the address of the property for which you paid the additional SDLT charge.
HMRC has outlined Stamp Duty reliefs and exemptions, which is worth reviewing.
Some of these reliefs on Stamp duty are applicable for:
– Building companies buying an individual’s home
– Employers buying an employee’s house
– Local authorities making compulsory purchases
– Property developers providing amenities to communities
– Companies transferring property to another company
– Right to buy properties
– Registered social landlords
– Crown employees
To find out more about Stamp Duty relief and SDLT refunds, speak to one of our property tax experts today.
Is SDLT payable when purchasing a buy to let property?
Since April 2016, property investors in the UK have paid a 3% additional charge in Stamp Duty when they purchase a buy to let property.
Stamp Duty Land Tax can be deducted from taxable gains to reduce the Capital Gains Tax paid when you sell a property.
Any residential buy to let property worth £40,000 or more is subject to Stamp Duty.
The 3% extra SDLT is in addition to the normal Stamp Duty rates and is based on the full amount of the property.
To reduce your Stamp Duty when purchasing a buy to let property, contact one of our property accountants today for a consultation.
How does this affect our American readers?
Our American clients that live in the UK will also pay the 3% SDLY higher rate if they were to keep their home in the United States and buy a UK home. This means that they may need to think about selling their home in say Florida and pay the Capital Gains Tax to the IRS. People that live in other states in the US will also need to pay CGT state tax. It is worth comparing the Capital Gains tax in the US against the 3% SDLT higher rate in the UK.
To learn more, make sure you head over to our sister company Purser Tax that helps British people save Tax in the US and Americans save Tax in the UK.
It is one thing to be tax-efficient in the UK or the US; it is another thing to be tax-efficient across the Atlantic.
This is why you need to get a tax advisor that truly understands international tax.