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NewslettersSDLT on second homes - stamp duty rates on second homes
When buying a new secondary home, many buyers are unprepared for the additional costs when buying a new second home. In the case of a house, that can be anything from planning and solicitor fees to VAT. Suppose you’re considering buying a second or holiday home in the United Kingdom. In that case, you may have to factor in additional taxes like SDLT (Stamp Duty Land Tax), depending on the property you are looking to buy. Read on to know more about stamp duty rates on second homes.
What is stamp duty?
Stamp Duty is a tax charged on transfers of certain real estate property types. The amount of duty is calculated based on the value of the property. While the government once collected this tax on paper with actual stamps, the term now refers to a property tax. It is one of the most common taxes in the world and is calculated as a percentage of the property’s value.
SDLT on second homes
If you are buying a second home, you may have to pay SDLT - Stamp Duty Land Tax at the higher rate of 15%. The usual rate for buying a second home is 3%. The rates for purchasing a first home are still zero. It is important to note that the exemption on SDLT for first-time buyers is still in place. This means first-time buyers buying a property worth less than £425,000 do not have to pay any SDLT. For example, if you are planning to buy a home worth £500,000 and have not bought a property before, then you will have to pay £3,750 as SDLT. What if you have already purchased a property and are now looking to buy a second home? In that case, the current rules say that you will have to pay a higher tax rate even if you have not made any profit on the first property. You need to see if you have paid the right amount at the right time. If you paid a higher amount of tax, you can check online or approach a tax advisor to see if any change needs to be made and How do I get my SDLT refund?.
Taxes to consider when buying a second home in the UK
Stamp Duty: If you buy a property, you will have to pay SDLT. The rate of tax depends on the value of the property. - Buyers’ Stamp Duty Relief: If you are a first-time buyer buying a property worth less than £625,000, you may qualify for Buyers’ SDLT Relief, which means you will not have to pay any SDLT on the property. Note that this is not the same as the First Time Buyers’ Mortgage Scheme, a government-backed scheme that helps people who have no funds in the bank to buy a house. You can check online or approach a tax advisor to see if you qualify for any relief. - Tax on your income: When you invest in property, you earn an income. You have to pay income tax on that income and pay National Insurance. You may also have to pay Local Tax on that income.
Tips for buying a second home in the UK
- Save up for a down payment: When you buy your first home, you get government help with the down payment. When buying a second home, there is no such help. Make sure you have saved enough for a down payment.
- Save for Stamp Duty: Before looking for a second home, ensure you have saved enough for the Stamp Duty.
- Check your credit rating: If you are buying a second home and you don’t own a home already, you may have to take out a mortgage. The lender will look at your credit rating when you apply for a mortgage. If your credit rating is not good, you may have to pay a higher interest rate on your mortgage.
- Consider your options: If you don’t have the money to buy a second home outright, you may want to consider a lease-to-own option or a shared ownership scheme.
Conclusion
The buying process of a second home is not any different than the buying process of a first home. There are a few things that you should know about the taxes on second homes and SDLT relief on second property before you apply for a mortgage. The best way to see if you are ready to buy a second home is to know your budget and credit score and make sure you can save for a down payment.
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