How does second home stamp duty work, and who does it affect?
Last month, the Chancellor of the Exchequer, George Osborne, gave a speech in the House of Commons where he delivered the government’s spending review, as well as the Autumn Statement. One of the key points of the statement was an introduction of a stamp duty rate for second homes.
What exactly is this rate?
As detailed in the table below, you can see there is an additional 3% of stamp duty taxation applied to second homes in each property value band. The government are introducing this in the hope of raising £1bn by 2021; this accrued amount will be invested in starter homes aimed at helping the younger generation get on the property ladder.
Who does it apply to?
It applies to anyone who purchases a property that is not considered the one they live in as your main residence – however, there are exceptions for caravans, mobile homes and houseboats.
What if I temporarily own two homes during the process of moving – will I be hit by the tax?
In short, yes. In the case that you are trying to sell your current property but purchase a new one before this occurs, you will be subject to the new stamp duty rate. However, if you sell your old home within 18 months of buying a new property, you will be able to claim back the 3% difference.
Also, if you already own a second property – such as a holiday home – but change your main residence, you will not be required to pay the additional stamp duty rate.
Are there any other exceptions?
As a matter of fact, yes. If you have your main place of residence in England, but wish to purchase a property in Scotland, you will not be hit by the extra tax; the opposite is true of those with their home in Scotland, but purchasing a second home in England.
How does this work for married couples and civil partnerships?
Joint owners of a property will share the cost of the additional stamp duty tax if they choose to buy a second home.
If only one person has complete ownership of the property and the other individual wishes to buy their own, then the rules can vary depending on whether or not you are married or in a civil partnership. For those who are not already property owners, but are married or in a civil partnership with an individual who is, the additional stamp duty rate will still apply. If an individual is not married or in a civil partnership, they will not have to pay the extra if they are not already the owner of the property they live in.
What is the opportunity?
The opportunity is to buy now, for less. The additional rate of stamp duty on second homes will come into effect on 1st April, 2016, meaning completion must take place before then to avoid paying the extra. There is an exception if you exchanged contracts before 25th November 2015; in this case, if completion takes place after 1st April, 2016, the additional rate will not apply.
The terms of the new duty are not entirely clear, but will be fully determined after a consultation paper is released in the near-future. You can view some of these matters for considerations at the bottom of this article by Paul Lewis.