Answering everything you need to know on how to avoid Stamp Duty on a second home...
No one enjoys paying tax and Stamp Duty is no exception. You’re already forking out large amounts for the house itself, removals, solicitors, and now you have to pay another large amount, simply for moving?!
It gets worse when buying a second home, with the Stamp Duty rates starting at a lower threshold AND increased rates. Bad we know!
Now you’re probably sat there wondering how to avoid Stamp Duty on a second home, but don’t worry the fact you’re reading this is a good sign!
We’re here to help answer all your questions AND give you some little tips and tricks on how to avoid Stamp Duty on a second home.
Ready to dive in? You can use this menu to help you quickly find the information you need, or you can ignore the menu and take it all in, starting at the very beginning…
- What classes as a second home?
- How much is Stamp Duty on second home?
- Is there any way to avoid Stamp Duty?
- Can I claim back Stamp Duty on second home?
- What if I own two homes because a sale has fallen through?
Has your buyer dropped out leaving you with the risk of owning two homes?
A second home is any property which isn’t your main residence. This may sound like we’re stating the obvious, but it can sometimes be a little confusing.
Whether the house has been bought as a holiday let, an investment or for a family member, it’s still classed as a second home. Even if the property is in a different country to your main residence, it will still be classed as a second home.
If you’re still a little unsure about what is classed as a second home, here are the factors HMRC use to define a main residence:
- The property located in the region where you’re a registered voter
- The property is in close proximity with your children’s schools
- The property is in the region where you’re a registered professional
- The property is in the location where your family spends most of their time, especially if you’re married
Is buy-to-let classed as a second home?
Yes, a buy-to-let is still classed as a second home, even though it has been bought for investment purposes and not lived in at all by you.
If, however, you own a buy-to-let and you’re selling your main residence to buy another, you will pay the normal Stamp Duty rates, instead of the ‘second home rates’, as you’re changing main residence, rather than buying an extra home.
Stamp Duty on a second home is at a higher rate than you would expect to pay on your main residence. The rates are about 3% higher and also start at a lower threshold.
You start to pay Stamp Duty on second homes that cost over £40,000. For a main residence, you currently don’t pay any Stamp Duty on properties under £500,000, due to the current 'Stamp Duty Holiday'. This was originally set to end on 31st March 2021, but it has now been extended until 30th June 2021.
If you’re unsure about how much Stamp Duty on a second home you will pay, you can use this helpful calculator to give you an answer.
This may come as a surprise to you but there are ways to avoid second home Stamp Duty! The bad news is, there are very limited situations that allow this…
How to avoid Stamp Duty on a second home:
- Buy a freehold property below £40,000 (we know these are probably quite hard to come by)
- Buy a caravan, mobile home or houseboat as your second home
- If you buy a second home but you plan on living in it as your main residence, you may be able to claim back a refund for the Stamp Duty if you sell your other home in under 36 months. This doesn’t mean you can claim back all the Stamp Duty, but you are able to claim the difference – for example, if your house is under £500,000 you can claim back all the Stamp Duty, as you currently wouldn’t pay any Stamp Duty on your main residence under this price
Legal ways of avoiding stamp duty
Maybe you’re not looking to buy a second home, but want to know if there are some ways to help you avoid Stamp Duty. Well this section for you, as we've got some tips and tricks to help you avoid Stamp Duty!
BUT this isn’t to say they’re ‘fool proof’ methods that will work every time…
- Haggle on the property price - if you’re able to get the property price under the 0% threshold (currently £500,000 on a main residence and £40,000 on a second home), then you will obviously have no Stamp Duty to pay. However, if you’re unable to get below the 0% threshold, you could still try haggle on your property price to get it into the threshold below you, helping you pay a lower sum than you originally thought
- Transfer property deeds - if the deeds of a house have been transferred to you by someone else, mortgage free, as a gift or in a will, then you won’t have to pay Stamp Duty on the property
- Pay for fixtures and fittings separately - this is similar to our first point, in that if you pay for fixtures and fittings separately to the main property, the price will be lower, maybe meaning it drops into the 0% threshold!
- Buy land - if you buy land, with planning permission to build, then you will only pay Stamp Duty on the price of the land and so it’s more likely to be under the 0% threshold, or at least a lower threshold than buying a house the size of what you would build. However, we know this won’t be something everyone can consider, but it’s just a suggestion!
Want to find a buyer before the end of the Stamp Duty Holiday to avoid paying it?
The short answer to this is yes you can! If you’re not exempt from paying Stamp Duty on a second home, then you can claim a refund.
But there are certain criteria that needs to be met, in order for you to be eligible to claim a Stamp Duty refund:
- You sold your main residence within three years of buying a new one (don’t worry, we know we mentioned this earlier, we haven’t repeated ourselves by accident!)
- You were charged Stamp Duty on second home by mistake
- You are applying for a Stamp Duty refund 12 months after the filing date of the Stamp Duty returns
- You are applying for a Stamp Duty refund 3 months after selling your main residence
To get a Stamp Duty refund, you will need to submit your tax details to HMRC, which you can do online. You will need to provide them with some details, which are:
- The amount you want to claim back
- The total Stamp Duty you paid
- The address of your old main residence
- The address of the ‘second home’ which you were wrongly charged Stamp Duty on
If you are claiming a Stamp Duty refund, the good news is HMRC will get back to you within 15 working days and, if approved, will also give you back the full amount in this time.
There may be a situation where you own two homes without meaning to. You might read that and think ‘HOW can anyone own two homes by accident?!’
Well, it may be a case of the house you’re selling falls through and you complete on the purchase of another home, meaning you now technically own two homes and will have to pay the higher second home Stamp Duty rates on the house you’ve bought.
According to ‘This is money’, in 2020 over 300,000 house sales fell through, a rise of 12% compared to the previous year. This would suggest there’s a fairly high chance you could become a victim of a failed house sale.
If your house sale is to fall through, the best solution would be to find another buyer FAST, so you don’t have to pay second home Stamp Duty rates, but it’s never that easy to find a fast-completing buyer, right?
You’re looking right at one…
Here at The Property Buying Company, we are a cash buyer of property, specialising in quick house sales (we have been known to complete in as little as 7 days)! We will give you a cash valuation for your property, cover your legal fees and arrange help with removals all in one smooth movement.
We know what it’s like when house sales fall through, especially with the added worry of potentially owning two homes and having to pay a higher rate of Stamp Duty. This is why we are a guaranteed buyer, what you’re offered is what you get – no worry of us pulling out from a sale!
We only require one quick viewing of the property, to make sure our valuation is accurate, and then we’re ready to go, no time wasters here! We can also arrange the whole process around timescales to suit you, so there's no risk of owning two homes at the same time.
We have over 50 years combined experience, making us a cash house buyer of property you can trust – check out our reviews for proof!
Give us a call or fill in our online form today to get a no-obligation cash offer, to sell your house FAST, and avoid paying the pesky second home Stamp Duty rates…
Worried your sale falling through will mean you pay second home rates?