Purchasing your first home, or moving into a new property, is an exciting and joyous time. It is also a big financial commitment. Getting expert financial advice could save you money as well as time and stress. There are many things to consider when purchasing a property, even more so if you are purchasing a second residential property. One of these is stamp duty.
What is stamp duty?
Stamp Duty Land Tax (SDLT) as it is formally known, is payable on the purchase of residential properties or land in England that is over the value of £125,000.
SDLT is payable when you:
- purchase a freehold property
- purchase a new or existing leasehold
- purchase a property through a shared ownership scheme
- purchase a property via a mortgage or buy a share in a property
SDLT is no longer applicable in Scotland. If you purchase a property in Scotland, you pay Land and Buildings Transactions Tax.
Stamp duty on second homes
A duty on the purchase of second residential properties was introduced on 1st April 2016. It effectively means that an extra 3% will be added to the normal SDLT.
It has naturally been an unwelcome change to legislation that has left many property investors thinking twice about acquiring new property for their portfolio.
Nevertheless other investors are continuing to press forward, and if you are considering buying a second home, either for your personal use, or as an investment property, it is vital you understand the new legislation.
How much SDLT is payable?
SDLT on residential properties is payable on increasing portions of the property value above £125,000.
The table below shows current levels of SDLT that apply to individual properties and to second homes:
Example: if you purchase a second residential property for the value of £300,000, SDLT owed will be calculated as:
£125,000 – £0 x 3% = £3,750
£250,000 – £125,001 x 5% = £6,250
The remaining £50,000 x 8% = £4,000
Total SDLT payable will be £14,000
Stamp duty on second homes is applicable on buy-to-let properties, holiday homes and on properties that are being bought for another family member to live in.
Refund of the 3% surcharge
It is possible to get a refund of the 3 percent surcharge if you sell your first property within 3 years. However, the SDLT in it’s entirety, including the surcharge, would be payable at the time of the transaction.
There are a few other exceptions to the rule. Speak to your accountant to find out if these could be applied to your situation.