Stamp duty on additional properties

By Ezgi Cetin

Stamp duty changes in April have seriously affected those who are purchasing their second homes and additional properties. They now have to pay extra stamp duty when buying properties that will not become their main home.

Property investors, buy to let owners, second home owners, and many others are concerned about the extra stamp duty and the additional cost it now means for them. This post explains the changes that have been made.

Explaining Stamp Duty

Stamp duty (officially known as Stamp Duty Land Tax, or SDLT) is a tax payable when a house, or land is bought. In this post we will concentrate on stamp duty payable on residential property.

All residential properties which are bought for over £125,000 are liable for stamp duty, which usually is paid by the property buyer, as one of the costs of sale.

The amount of stamp duty payable depends on the purchase price of the property.

Stamp duty is paid in “tiers”, like income tax.

This table shows how it is calculated for a house bought for £1 million.

So, what are the changes?

Stamp duty rates are increased by 3% when buying a second home, buy to let or property as an investment.

This table shows the increased stamp duty rates on a house bought for £1 million as a second home:

The stamp duty due on a £1 million house is £30,000 more for a second home, buy to let or an investment property.

It is very important to know whether you are caught by these changes.

Is your purchase affected?

If you already own a property, no matter where in the world, then purchasing a property in England, Wales or Northern Ireland will constitute a second property and you will have to pay the extra stamp duty.

However:

  • Both properties (or the value of your share in them) must be worth over £40,000 for the second property to be liable to the extra stamp duty.
  • Extra stamp duty is not payable if the property contains both residential and non-residential elements (like buying a shop with a flat above).
  • People who have a 50% or less share in a property that they have inherited in the last 3 years do not have to pay the extra stamp duty when they buy another property.
  • Married couples and civil partners are considered to be one unit, so the extra stamp duty rate will apply if one already has a property.
  • If you buy a second property, and then within 3 years of the purchase you sell your previous main residence, and the second property then becomes your main residence, you will be able to claim a refund on the extra stamp duty you originally paid on the second property.

Some examples

John has been living and working overseas for a number of years and purchased a property there which he used as his main residence. He is now returning to the UK and wishes to purchase a house here which will become his main residence. Extra stamp duty will apply to the property purchased in the UK as following the purchase John will own an additional residential property. If John sells his overseas property within three years of his UK purchase he will be able to claim back a refund of the extra stamp duty he pays.

Nita is a property developer who purchases residential properties, refurbishes and then sells them on. Nita will have to pay the extra stamp duty as there are no reliefs or exemption from the higher rates in her case. Charlie owns a buy-to-let property with 4 friends. The property is worth £150,000, and her share is worth £30,000.00. She is currently living with parents but is looking for a property to buy. Charlie will not have to pay the extra stamp duty because her share of the investment property is worth less than £40,000.00.

Derek is purchasing a shop with flats above as an investment. Both the shop and the flats will be rented out. Derek also owns a main residence and a flat is rented out. Derek will not have to pay the extra stamp duty because it does not apply to purchases which contain both residential and non-residential elements.

If you are concerned about how the changes to stamp duty might affect you, contact Ezgi Cetin at our City Office.

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