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If you’re considering purchasing a second house, you’re probably aware of the extra stamp duty payment that comes with it. This additional payment might grow to dizzying proportions, with rates ranging from 3 to 15% depending on the amount you spend for the property in issue. It’s no surprise, therefore, that many purchasers ask whether they might avoid paying stamp duty on a second home. Is it possible?
So, will we investigate?
What exactly is Stamp Duty?
Stamp Duties Land Tax, commonly known as Stamp Duty, is a tax that must be paid when acquiring a home in the United Kingdom (the tax also applies to land purchases). The tax applies to both freehold and leasehold properties, whether purchased under a shared ownership system, outright or with a mortgage.
The amount of stamp duty you must pay is determined by the purchase price of the property and the tax band it fits into. The payment of stamp duty is also determined by whether you are purchasing a first or second property and if you are a first-time buyer.
The UK government implemented a stamp duty holiday in July 2020 to stimulate the housing market as the nation emerged from its first pandemic-related lockdown.
During the pandemic, which had frozen the market and hampered finances, the tax decrease made it simpler for buyers and sellers. There was no tax to pay on the first £500,000 of property transactions from March to June 2021. From July 2021 until the end of September 2021, you will not be required to pay tax on the first £250,000 of a new house. Stamp duty rates will revert to normal in October 2021.
Due to the stamp duty vacation, property prices rose in 2020 and 2021 as consumers raced to finalize sales before the stamp duty holiday ended. As a result, some individuals feel that property values in certain places may decline as there is less demand from those trying to purchase properties before the stamp duty deadline to save tax.
How to avoid stamp duty on second home?
1. Bargain on the price of the property
The amount of stamp duty you pay is determined by various circumstances, including whether you are a first-time buyer, the property’s price, and if you are purchasing a second or vacation home.
Like many other taxes, Stamp duty has varied rates based on the portion of the property price that falls inside each band.
On this stamp duty page, we detail the tax bands, and you can use a stamp duty calculator to calculate how much you will have to pay.
The simplest strategy to save stamp duty is to negotiate the property’s asking price to avoid a higher tax bracket, but there are other options.
For example, if you’re purchasing a new property, the seller may offer to pay the stamp duty. And if it doesn’t, you can always inquire.
Discover how Robin Young saved £9,500 by having his housebuilder pay his stamp duty.
2. Sell a property
You will not have to pay stamp duty on the market value of your house if the deeds have been transferred to you mortgage-free.
It is common when the property is donated or included in someone’s will.
However, if you get a portion of a property and assume responsibility for part or all of the mortgage, you may be required to pay stamp duty.
Learn more about giving property and the tax ramifications.
3. Pay off your ex’s debts
It may be a tiny consolation for someone divorcing their husband or civil partner, but you may purchase your ex’s portion of a jointly owned house without paying stamp duty.
People who are neither married nor in a civil partnership may be required to pay stamp duty. In our article, more information may find: Who inherits my stuff if I divorce or die?
4. Reclaim stamp duty
You may be eligible to request a refund of any stamp duty you have paid in certain situations.
For example, if you sell your primary residence within three years of purchasing a secondary residence, you may reclaim the additional 3 per cent stamp duty and additional house fee.
So, if you acquired a second property, possibly because you couldn’t sell your prior one, you’d have to pay the 3% charge.
However, if you sell your previous main property within 36 months and the extra home becomes your primary residence, you may be eligible for a stamp duty refund.
Certain regulations govern how long you have to reclaim, so check with HMRC.
5. Separately pay for fixtures and fittings
Because stamp duty is only due on property purchases, detachable fixtures and fittings are exempt from the levy. It implies they might be subtracted from the purchase price of the property.
It may include characteristics such as:
- Carpets
- Curtains
- Ovens
If a seller is willing to leave goods, you should agree to pay a fair price for them and deduct that amount from the purchase price.
6. Create your own
It may seem to be a touch more severe. If, on the other hand, you acquire a plot of land with planning permission to construct a house, you only pay stamp duty on the cost of the land, not the value of the completed residence.
What Qualifies as a Primary Residence?
Your primary home is the property where you live. If you split your time between two homes, HMRC will determine which one qualifies as your primary residence. They will consider where you spend the most time, where you are registered to vote, where you are registered with a doctor, and if you have children, where they attend school.
Conclusion
There are different taxes and levies to consider when acquiring a second house in the UK to escape to on weekends or a buy-to-let property for additional income. These encompass more than simply the purchase price of the property. One of the most significant is second-home stamp duty, an essential but frequently expensive property tax. While it is inevitable for most individuals to purchase a second property, you may be able to avoid paying for it under the appropriate circumstances and with a little know-how.
