How to Avoid Stamp Duty on A Second Home

Avoiding stamp duty on second homes

How to Avoid Stamp Duty on A Second Home

Find out if you have to pay stamp duty on a holiday home

In an age where many people own a holiday house, a popular question is if it is possible to avoid stamp duty on a second home.

The UK chancellor has announced a stamp duty holiday in order to boost property sales and the UK economy. This reduction in stamp duty applies to England and Northern Ireland from 8th of July 2020 to 31st of March 2021. The threshold where stamp duty will be applied has been risen from £125,000 to £500,000. Stamp duty calculator | Stamp duty wales (LTT)

Every property purchase in the UK worth over a certain amount is liable to Stamp Duty and this cannot be avoided. However, since April 2016, buyers in England and Northern Ireland have been liable to paying an additional 3% Stamp Duty on the purchase of any second home worth over £40,000.

This tax must be paid whether the second home is a holiday home, a buy-to-let property or an investment property. You cannot avoid Stamp Duty even if one of the homes is located outside the UK. If you buy a home with someone else (such as a spouse or civil partner), you are considered a single unit by the HMRC. If they have another property in their name, your joint purchase of a house means that this property will not be exempt from the additional property tax on a second home.

There are ways to avoid paying extra Stamp Duty on a second property but only in specific situations. We briefly explain some of these circumstances below.

Avoiding Stamp Duty on a holiday home

Holiday homes are liable to Stamp Duty if they are in a fixed position. However, you do not have to pay this property tax on holiday accommodation such as caravans, boat houses and mobile homes which can be moved from place to place.

If you are thinking about investing in a holiday home for your UK holidays, a good alternative would be to buy one of these types of homes. Not only are they cheaper but think of how many different places you can visit across the country instead of returning to the same resort year after year.

Avoiding Stamp Duty FAQ

When must Stamp Duty be paid?

Stamp Duty must be paid within 30 days of finalising the property purchase. For most people, the payment is done by their solicitor as part of the house-buying procedure. If it is not paid, then there are financial penalties depending on the length of the delay and interest is charged by the HMRC on the money owing.

How does Stamp Duty differ in Scotland and Wales?

Stamp Duty in Scotland is called the Land and Buildings Transaction Tax (LBTT) while in Wales it is the LTT (Land Transaction Tax). Despite the differences in name, these property taxes work in exactly the same way as in England and Northern Ireland. The only differences are the property price bands to calculate Stamp Duty vary and that the tax on a second home in Scotland (known as the ‘additional dwelling supplement’) is 4% rather than 3% as it is in the rest of the UK.

How can I claim back money if I paid Stamp Duty by mistake?

If you believe that you should not have paid Stamp Duty on a second home, then you should contact the HMRC. You will need to provide details such as the addresses of both properties, how much Stamp Duty was paid and how much you are claiming. There are certain time restraints so always do this as soon as one of the properties is sold.

Avoid Stamp Duty when buying property for your children

It is natural that you would like to help your children get their feet on the property ladder especially when they face problems like rising house prices and saving enough money for a deposit. However, as soon as your name is put on the title deeds, you must pay Stamp Duty on this second home.

The two most popular financial products to assist them in their property purchase without becoming the sole or joint owner are:

  • Acting as a guarantor for your children’s mortgage
  • Taking out a family offset mortgage

In both cases, this can have ramifications for your own financial situation if your children default on their mortgage repayments. Before deciding to help them like this, it is crucial that you speak to an independent FCA-approved financial advisor. They will be able to explain the products so you do not make a decision you will later regret.

Property Resources
Stamp Duty and Land Tax from HM Gov’t
Financial Conduct Authority (FCA)
Stamp duty calculator for England and NI
Stamp duty calculator for Wales (LTT)

Avoiding Stamp Duty after a separation or divorce

If you are transferring the ownership of the marital home in court through a Property Placement Order, then the person transferring ownership is exempt from paying Stamp Duty.

If, however, the partner retains their share in their home but goes on to buy another property (even as shared/joint ownership), this is considered a second home by the HMRC and is liable to Stamp Duty. If their former home is later sold, they can then apply for a refund in certain circumstances.

Avoid Stamp Duty on inherited property

There are certain circumstances when you must pay the 3% property tax surcharge on property you receive through a bequest.

If you have inherited property and are the sole owner, then you are not exempt from paying Stamp Duty on this second home. However, if your share of the second home is 50% or less, then you do not have to pay the extra tax. Even if the inherited property is sold and you use the cash to invest in a different (second) property, you are not liable for Stamp Duty.

Avoiding Stamp Duty on mixed-use/business premises

If you are planning to use the second property as business premises (even in part), then you might not be liable for paying the extra Stamp Duty. However, this might be a false economy in the long run.

Declaring that a property is for your business can result in higher business rates (instead of Council Tax) and might require further expenditure such as public liability insurance. Before deciding to do this, consult a financial advisor.

Reducing the size of your Stamp Duty bill

If you are buying property and the vendors are leaving behind fixtures and fittings which are an integral part of the structure, then you can deduct their estimated cost from the purchase price. As Stamp Duty is calculated as a percentage of the purchase price, this will effectively reduce how much you owe to HMRC. Generally speaking, you cannot avoid stamp duty regardless of the condition of the property you purchase.

This rule does not include fittings such as furniture, curtains and carpets. You should also try to be as accurate as possible when working out their cost as massively inflated prices will be queried by the Tax Office.

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