When you buy a residential property, you are usually liable to pay Stamp Duty Land Tax (SDLT) on any amount of the purchase price over £125,000 (at rates that increase in bands proportionally to the purchase price, rising from 2% of the portion from £125,001 to £250,000, to 12% on any amount above £1.5 million).
When buying a second or subsequent home, however, if the property is worth more than £40,000 (and isn’t a mobile home or a houseboat), unless you exchanged contracts prior to November 26, 2015, you will usually be liable for an extra 3% on top of normal SDLT rates.
This extra charge, however, won’t apply if you meet these three criteria:
- You have disposed of your “major interest” in your previous main residence prior to completion of the new purchase. This does not automatically mean you need to sell that main residence; you could give it away, for example (though this may have its own tax implications) or it may be transferred as part of a divorce agreement.
- The property you are acquiring must be your new main residence (I.e. you are going to live there as opposed to renting it out).
- You must have lived in your previous main residence at some point during the last three years (i.e. you can’t have lived abroad, for example, permanently over the past three years and still claim the benefits of disposing of your nominated main residence).
Karen James, Partner and Head of Conveyancing explains; “It is possible to apply for a refund of the extra SDLT charges in certain circumstances: if you sell your main residence within three years of paying the higher rates, and present a claim to HMRC within 3 months of that sale (or within 12 months of the filing date of the relevant tax return – whichever comes later) you should then be entitled to repayment. It is only the buyer of the new main residence, or their agent, who can apply for this rebate.”
There are various stamp duty calculators available online which can give you some idea of the extent of your liabilities; however, because this is a constantly evolving area of government policy (thanks to its significant value to the Exchequer and as a market motivator) these tools may not be up to date, and it’s always advisable to contact a solicitor who will be able to discuss the most up-to-date legislation and work out the appropriate rates for any purchase you may be looking to make.
If you’re looking to buy a second home and need more information on stamp duty and other costs, contact our expert property team free on 0808 1685 643 or email us on getmoving@ramsdens.co.uk.