There are several taxes and levies to consider when owning a second property in the United Kingdom, whether for a weekend retreat or a source of additional income. In addition to the purchase price of the actual property, these factors are considered.
Stamp duty for a second home, for example, is an essential but costly property tax. You can apply different methods and strategies to avoid paying for the second home under the correct circumstances and just understand the tips and tricks while you purchase a second house.
Define Stamp Duty on Second Home?
Stamp duty can be charged at a higher rate if you already own a home and then purchase a second home. It doesn’t matter whether it’s a vacation house, renting a commercial property, or something else entirely.
When purchasing a freehold property or a property of leasehold, or a plot of land, you may be required to pay stamp duty to the government. If the property or house you’re purchasing is worth more than a particular monetary limit, you’ll be charged for it. You may be able to avoid paying this additional stamp duty in certain circumstances.
What is the common value for Second Home Stamp Duty?
There is a big difference in stamp customs duties for second houses and first homes regarding stamp duty prices for investment properties and purchases to let residences. In the first place, only if the property you purchase is worth less than £40,000, stamp duty is not required to be paid.
The amount of stamp duty you pay and the threshold at which you pay it will vary based on your purchase in the United Kingdom. As a general guide, we’ve included the rates for England, Wales, Northern Ireland, and Scotland below:
Stamp duty prices and values for second homes in England and Northern Ireland are,
- For houses valued at less than £250,000, the tax rate is 3%.
- On buildings priced between £260,001 and £930,000, the rate is 8 percent. More than a dozen percent of homes in this price range fall into this category.
- For homes valued at more than £1.5 million, 15% will be added.
You may anticipate paying the below-mentioned amount in lieu of Tax for Buildings and Land Transaction Tax if your second property is in Scotland,
- 4% for buildings valued at less than £145,000
- In the £145,001 to £250,000 price range, 6 percent
- 9 percent of homes between a rage of £250,001 and $325,000 are subject to this tax
- For homes between $325,001 and $750,000, the rate is 14 percent.
- For homes exceeding £750,000, the tax rate is 16%
The Transaction Tax for Land in Wales will be the following,
- 4% for houses with a value of less than £180,000
- 15% for houses between a range starting from a value of £180,001 to £250,000.
- 10% for houses valued at more than £250,000.
- Range starting from £400,001 till £750,000, the rate is 11.5%.
- 14% for homes valued between $750,001 and $1.5 million.
- 18% on houses with a value of more than £1,500,000.
Methods and Strategies to Avoid and Not Pay Stamp Duty for Second Home
If you wonder how to avoid stamp duty on a second home, look no further. The second home can be exempt from stamp duty. Second-home stamp duty may make the purchase price skyrocket. Typically, it’s an inevitable tax that must be paid as part of acquiring a piece of property.
Nevertheless, you may get out of paying it if you qualify for one of a few rare exceptions. In addition, if you subsequently finalize to sell off your first house, you may be able to recover back part of the stamp duty you paid.
1. Take advantage of purchasing a caravan, campervan, or houseboat
Stamp duty is not automatically applied to all types of real estate. There is no stamp duty in a scenario where you purchase a certain type of home, regardless of its value and price. Motorhomes, caravans, mobile homes, travel trailers, and houseboats are all excluded from this rule.
2. A family member’s mortgage or deed should be registered in their name
Let’s say you want to purchase a second home for a member of your family to reside in. As long as your name is not a part of the deed, you won’t have to pay second-home stamp duty. This may be accomplished in one of three ways,
As a token of gratitude, give them the deposit money
To avoid paying second-home stamp duty on purchasing a house in the name of a child or an elderly relative, you might give them a gift of money for a down payment. Following their successful application in terms of a mortgage, their name will be solely associated with their new home and its mortgage. Your second house will become their main dwelling.
Apply for a mortgage with some family offset
A few banks provide this kind of mortgage, and it functions by allowing you to deposit a portion of your money into a specific bank account. An individual approved for a loan by the lender may then utilize the money they get as a down payment to purchase a home.
Nothing will happen to the money you have in a savings account. As long as your loved one has made on-time monthly payments, the money will sit in a secure place for years.
3. Invest in a home for under £40,000
T stamp duty value or tax for the second home may be avoided by purchasing a house that is not more than £40,000. This could be possible depending on the location where you purchase and how big the house is.
As a beginner in terms of being a buyer, you should consider buying a property to let from property developers. First-time buyers cannot buy a second house, but they may invest in a buy-to-let rental property.
People who acquire buy-to-sell properties after they’ve already purchased their main dwelling are frequently paid stamp duty for a second home for the transaction. You won’t have to pay for the stamp duty on a second home if you’re a first-time buyer acquiring one.
In addition, you should take advantage of stamp duty rates for first-time buyers. Buying a property in the “buy-to-let” category with a person who isn’t a first-timer in buying properties is the lone exemption. You’ll have to pay the stamp duty for the second home since you’ll be classified as a single entity for tax reasons.
Final Thoughts
If you’re considering purchasing a second house, you’ll undoubtedly be aware of the extra stamp duty payment. With rates ranging from 3 to 15 percent, depending on the property’s price in issue, this additional payment may be exhilarating.
Purchasers wonder whether or not they may avoid the payment for stamp duty on a second home. Look at the methods mentioned above and strategies to find out.
