Since April 2016, Stamp Duty Land Tax (SDLT) has been due on second homes in the UK. The tax starts at 3 per cent and increases on a rising scale in line with the value of the property (see graph below):
Referred to as the Higher Rates on Additional Dwellings (HRAD) for tax purposes, it’s due on all second homes which are valued at £40,000 or more. This is the case, regardless of whether the second residence is a buy to let property, holiday home or retirement villa abroad. Even if you don’t own the house i.e. you’ve bought it with family or friends and only have a share in it, if that share is worth £40,000 or more, then you are still due to pay tax.
The tax is usually paid by the solicitor or conveyancer you use to buy the house. He or she will arrange for HMRC to receive the funds.
HRAD tax is charged on the value of the entire property – as opposed to regular stamp duty, where the higher rates are charged on the proportion of the property which is above the threshold (known as a tiered system). This means that if you were buying a property for £120,000, then the HRAD would be £3,600. You’d also have to pay the ‘regular’ stamp duty on the property (although in this case it would be zero since the first threshold is £125,000).
The only exemption would be if you were replacing the home you live in – in which case HRAD wouldn’t apply. But you’d have to sell the home first (which would incur capital gains tax). You could ask for a refund on the HRAD, however, if you manage to sell your first home within 36 months of buying the replacement property.
If you sell your home before you’ve found a new place to live, and move in to rented accommodation, or with family in the meantime, then you’ll have 36 months to find something without having to pay HRAD.
Exceptions to the HRAD rule
The additional tax on second homes only applies to property (or ‘dwellings’). This means that if you buy a plot of land to build a home on, then you won’t be liable for HRAD. However, if you buy the land on which construction of a house has already begun, you might have to.
Property that is inherited isn’t liable for additional stamp duty. However, if you buy another property within selling the inherited home first, then it may apply.
Timeshare properties aren’t usually liable for the additional tax, since they tend to be owned by someone else. Neither are house boats, caravans or motorhomes – even if they happen to be worth more than £40,000.
Buying a mixed-use property i.e. a flat with a shop below won’t incur the additional tax (unless you own one already, in which case it will). Commercial property such as offices, shops, warehouses etc. are liable either.
Differences in Scotland and Wales
In Scotland SDLT is called Land and Buildings Transaction Tax (2 per cent on property worth more than £145,000) and in Wales it’s known as Land Transaction Tax (3.5 per cent on properties worth £180,001 and more).
In Scotland, the tax on second homes is referred to as the Additional Dwelling Supplement. In January 2019, it was proposed to increase this from 3 to 4 per cent (parliament is still to decide).
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