How much Stamp Duty do I pay on a second home?

Posted 03rd July 2023 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.

How much Stamp Duty do I pay on a Second Home?

The introduction of the Higher Rate on Additional Dwellings (aka the 3% Surcharge) in April 2016 means that the answer to this question is more complex than you may think.

When do I pay the surcharge?

When you buy any residential property in England or Northern Ireland while already owning another residential property or a share of a residential property worth over £40,000 anywhere in the world. This last is important, and applies to all parties when more than one person buys a residential property, including married couples –already owning a residential property anywhere in the world will trigger the surcharge.

How much is the surcharge?

To answer this, we must first understand that Stamp Duty is charged based on what is known as a ‘slice’ system, which divides the value of a property into certain portions and charges a percentage based on each. As of September 2022, on a residential property this means no Stamp Duty on the first £250,000 of a property’s purchase price (aka the ‘zero rate band’), 5% of the next £675,000 up to £925,000, 10% of the next £575,000 up to £1.5 million and 12% of anything above £1.2 million. This means that, for example, the Stamp Duty on a £300,000 residential purchase would be £2,500, being 5% of the £50,000 above the zero-rate band.

Read: How multiple dwellings relief could save you thousands on stamp duty

The reason it’s vital to understand this is that the 3% surcharge applies to each slice including the zero band. Thus an additional residential property bought for £300,000 would result in a Stamp Duty Bill of £11,500, with a rate if 3% applied to the first £250,000 and a further 8% to the next £50,000.

When do I pay the Surcharge?

Payment of the surcharge is due on completion of the purchase of the second residential property. Note that this is true even in a scenario where the simultaneous sale of the existing residence is simply delayed until after the purchase of the new. Even if your existing residence is due to be sold days after the new purchase completes, the surcharge must still be paid.

That doesn’t seem fair?

Happily, if you dispose of your main residence and make the new property your main residence within 36 months of completion of the purchase, you are eligible to claim a refund of the surcharge from HMRC. In certain circumstances, you may even have longer to reclaim.

Any way I can avoid the surcharge?

Certain reliefs do apply – if the property purchased is mixed-use, for example a shop with a flat above, or if the property is valued at less than £40,000. You should seek expert advice if you think there’s any possibility your purchase may not be subject to the surcharge, as mistakes can be costly.
What’s the point?

Read: How to tell if you’ve overpaid on stamp duty land tax

From the point of view of the 2023 property market, the Surcharge may seem an odd choice. In 2016, with increasingly disillusioned First Time Buyers and a booming rental market, it was felt that a measure was required to free up cheaper properties at the lower end of the market to encourage more home ownership amongst the young. There is scant evidence that the Surcharge did much to redress the balance in this regard, but HMRC’s revenue stream from property tax went up, so it’s unlikely that the Surcharge will be reviewed any time soon.

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.