Stamp Duty Land Tax (SDLT) on Second Home – How much do I need to pay?

Posted 17th February 2022 by ctatax-admin

As with many issues relating to Stamp Duty in the UK, the answer is not as straightforward as you may think/hope.

As of April 2016, the government introduced a new amendment to the SDLT legislation which required an additional 3% ‘surcharge’ to be applied to the Stamp Duty due on any purchase of an additional residential property, i.e. a residential property that was not the main dwelling of the purchaser and which they held in addition to their main residence.

Because Stamp Duty now operates on a ‘slice’ system, this means that rather than an additional 3% on your purchase price, the surcharge is actually charged at a rate of 3% per ‘slice’ of the purchase price as defined for Stamp Duty purposes – 3% on the first £125,000 of the purchase price, 3% on the next £125,000, 3% on the next £625,000, 3% on the next £575,000, and 3% on any remaining amount of purchase price over £1.5 million.

This means that for purchases of additional residential properties over £1.5 million, the total SDLT on that final slice, including standard liability plus the surcharge, is 15%.

If that all sounds like a headache, we’re only just getting started… 

With such a sweeping change to the legislation, there were obvious issues which sprang up straightaway. Would someone already owning a residential property in another country be liable for the surcharge if they purchased a residential property in the UK? Yes.

5 ways you could save thousands on your Stamp Duty bill

Would the charge apply to properties with ‘annexes’, often bought to accommodate elderly relatives? At first yes, but then the government acted to rectify this ‘manifest unfairness’ with an amendment.

What if a couple – married or unmarried – bought a property together and one of them already owed a residential property? The surcharge would apply, if both were buying the new property.

These are just a few examples – the truth was that because the change was implemented quickly, and with most of the recommendations made during the consultation period ignored, numerous issues sprang up and left buyers and their solicitors confused as to when and how the rules applied.

3 examples of cliff edges in Stamp Duty Land Tax

Buyers found themselves suddenly facing huge additional Stamp Duty charges once they had already exchanged contracts as solicitors realised too late that the surcharge did apply. Others found themselves having borrowed additional funds unnecessarily as they had been mis-advised the surcharge would apply.

But why had the government even made this alteration? Oddly, it was designed to discourage Buy To Let investors constantly hoovering up the lower end properties in the market, and therefore freeing up those properties to encourage First Time Buyers and therefore stimulate the property market.

Read our Property Industry Eye article

Why is this odd? Well, the legislation seemed too widely designed to target the specific cache of the market that was nominally being addressed – middle-class homeowners who’d been buying up flats and small properties since the Blair era had encouraged it – and instead caught up those looking to buy properties for their children, investing in somewhere for their children to live while at university and so on.

Even companies which owned Let properties were not spared from the reach of the change. But that wasn’t the oddest thing… 

Multiple Dwellings Relief, also known as MDR, was another amendment to Stamp Duty laws introduced in 2011 and was introduced to encourage investment in property by buy to let landlords, specifically properties comprised of multiple dwellings such as blocks of flats. Given the ideologically opposite purpose of that relief to the surcharge, you’d expect that it was dropped when the surcharge came in, but in fact, it remains on the statute books even now.

Aside from a brief surge in purchases of additional residential properties in the months leading up to the introduction of the surcharge in 2016, there is little evidence to suggest that the change had the impact it was intended to have. What it did do was overcomplicate  Stamp Duty even more, adding another barrier to many different types of purchaser in order to discourage one small group, whose numbers had arguably already been starting to decline.

Have you purchased UK property in the last 4 years? You could be eligible for a refund from HMRC. SDLT Refunds is a division of Cornerstone Tax.

So how much do you need to pay on a second home? Well, that rather depends on how you measure the cost, what your precise circumstances are, and whether you intend to dispose of your current home within three years. In terms of time, energy, legal bills, and potential headaches, the cost can be substantial indeed. Whereas we would always recommend property buyers seek expert tax advice on their SDLT liability, this is even more essential when an additional residential property is being bought – the consequences for not doing so can be far-reaching and potentially financially devastating.

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