How to avoid stamp duty on a second home

Since the stamp duty holiday in July 2020, a bold move designed to keep the housing market moving during the pandemic, stamp duty rates have slowly risen back to where they were pre-Covid. As house prices and the cost-of-living increases at an astounding rate, this tax has become even more unfavourable among the many homebuyers who are obliged to pay it.

If you already own a property and decide to invest in a second, whether it will be used as a holiday home, buy-to-let, or any other use, you will need to pay an additional rate of stamp duty. However, there are certain, limited scenarios where you may be able to avoid paying second-home stamp duty, which are:

  • If the additional property is worth less than £40,000.
  • If you purchase a houseboat, caravan, or any type of mobile home of any value.
  • If you intend to live in the second home as your main residence and have sold your first home. If you buy a second home to use as your main residence before selling your current home, and you manage to sell your current property within three years, you will be able to claim for a refund on the stamp duty you paid.
  • Purchase a buy-to-let as a first-time buyer. Typically, buy-to-lets are purchased by people as an investment after they have bought their primary residence, so they are subject to paying second-home stamp duty charges. However, if you are a first-time buyer purchasing a buy-to-let you will evade paying the additional charge. Plus, you should benefit from first-time buyer stamp duty rates. Watch out though, if you are planning to buy a buy-to-let with someone who is not a first-time homebuyer, you will be liable to pay the second-home stamp duty tax.
  • If the property is intended to be used by a family member, you could put the deed and mortgage in their name. If your name is on the deeds, you will always have to pay the additional rate of stamp duty for a second property and you already own a home (unless you fall into one of the four scenarios above). But, if you want to buy a second property for a family member (your children for example) to live in, you can avoid paying the extra stamp duty tax by doing one of the following three things:
  • Gift them the money for a deposit so they can apply for a mortgage totally in their own name.
  • Act as a guarantor. This way you will not be classed as the legal owner of the property (meaning it will not be classed as your second home). It does mean that you are responsible for covering the mortgage repayments if your family member is unable to pay them for themselves (no matter what the reason).
  • Apply for a family offset mortgage. This type of mortgage lets you place some of your own savings into a particular bank account which the lender will then use as a deposit for a family member to buy a house and apply for a mortgage. The money in the account will not be touched, it will simply sit safely for several years. You will get it back, provided your family member has kept up with their monthly payments. In short, your savings are used against the mortgage, but you still ‘own’ the money.

Can I avoid paying stamp duty on a second home if I buy it in my spouse’s name?

Unfortunately, the government and the HMRC view married couples and civil partners as one unit, so you will be liable to pay the higher rate of stamp duty on a second home, even if you buy using your spouse’s name. However, if you are purchasing it for another family member to live in, you will be able to put the deeds and mortgage in their name and evade paying the additional tax.

Second-home stamp duty refunds

Fear not, if you can’t evade paying the additional higher rate tax on a second property because you don’t fall into any of the categories outlined above, it may still be possible to claim back some stamp duty through a tax refund if you later decide to sell your first home.

In some areas of the UK, you are legally allowed to claim back the stamp duty on your primary residence if you sell it within three years of buying your additional property. You still must pay stamp duty on your second home, but at least you can get some money back on your first.

How much is the stamp duty rate for second homes?

For second homes, you will be required to pay an extra 3% on the standard stamp duty rates. As outlined above, this is for properties over £40,000, but does not include houseboats, caravans, or any other type of mobile home of any value. It is important to note that the additional higher stamp duty rate is different in England, Northern Ireland, Wales, and Scotland. Below, is a breakdown, so you can easily compare:

Stamp duty in England and Northern Ireland

Property Purchase Price Stamp Duty Rate Stamp Duty Rate for Second Homes
Up to £125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1.5 million 10% 13%
Over £1.5 million 12% 15%

Stamp duty in Scotland

Property Purchase Price Stamp Duty Rate Stamp Duty Rate for Second Homes
Up to £145,000 0% 4%
£145,001 to £250,000 2% 6%
£250,001 to £325,000 5% 9%
£325,001 to £750 million 10% 14%
Over £750 million 12% 16%

Stamp duty in Wales

Property Purchase Price Stamp Duty Rate Stamp Duty Rate for Second Homes
Up to £180,000 0% 4%
£180,001 to £250,000 3.5% 7.5%
£250,001 to £400,000 5% 9%
£400,001 to £750,000 7.5% 11.5%
£750,001 to £1.5 million 10% 14%
Over £1.5 million 12% 16%

The HMRC also has a handy stamp duty calculator which work out whether you will be liable for stamp duty based on your circumstances, as well as provide you an idea of what you will be required to pay.

If you want to find a professional agent that you can trust to provide support with either sales or letting management. Please contact us here.