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Stamp Duty - Second Home

If you are thinking of buying a property with the intention of holiday letting then there a number of financial considerations you need take into consideration. Stamp duty for second homes is one of those things that can catch buyers unaware, so its important you have all the facts and figures before going ahead.

What is Stamp Duty? 

One of these is Stamp Duty (Land Transaction Tax) – in Wales. According to the Welsh GovernmentYou must pay LTT if you buy a property or land over a certain price in Wales. The current LTT threshold is £250,000 for residential properties purchased at the main rates and £225,000 for non-residential land and properties”. 


How does it work? 

You are taxed on the part of the property that falls into each Stamp Duty threshold (pictured below).

For example, if you buy a property in Wales for residential use only for £470,000 before 31/03/2021

You will pay 0% on anything up to £250,000, you will then pay 5% on the next £150,000 and 7.5% on the final £70,000.

That equals £0 (0% of £150,000) + £7,500 (5% of £150,000) +£5,250 (7.5% of £70,000)  = £12,750

 

The threshold and % amount will change as of April 2021 in Wales as you can see below. And there is also an additional premium charge to consider when buying a second home.

There are also some helpful calculators online that can calculate this for you depending on the reason for purchasing


What are the price bands? 

Shown below are the different price bands

Purchases on or before 31/03/2021

Stamp Duty

 

Purchases on or after 01/04/2021

Stamp Duty Second Home

If purchasing a second home with the intent of letting such as holiday letting, there is an additional premium charged


What is the additional premium?

The additional premium for properties in Wales is 4% of the overall property price.

So for the example we gave above

For example, if you buy a property in Wales for residential use only for £470,000

You will pay 0% on anything up to £250,000, you will then pay 5% on the next £150,000 and 7.5% on the final £70,000.

That equals £0 (0% of £150,000) + £7,500 (5% of £150,000) +£5,250 (7.5% of £70,000)  = £12,750

 

You also need to pay an additional 4% on top of the value of the property

So £12,750 (standard charge) + (4% of £470,00) £18,800 = £31,550


Who has to pay the higher rates of Stamp Duty (Land Transaction Tax)?

If you’re buying an additional residential property, you’ll probably have to pay the higher rates of Stamp Duty.

These are the rules that apply:

  • If the residential property you’re buying is worth £40,000 or more and you already own a property worth £40,000 or more.
  • Additional properties that you part own, so long as your share is worth £40,000 or more.
  • If you currently own a property abroad and are looking to buy an additional property back in the UK worth more than £40,000.
  • If you’re married or in a civil partnership, the rules apply as if you are buying the property together, even if you’re not. So, if your spouse has to pay the higher rates, you’ll have to pay them.

It doesn’t apply:

  • If the property is worth less than £40,000.
  • If the property is moveable – e.g. caravans, houseboats or mobile homes

Are there any exemptions to paying the higher rates?

There are some cases where you could be exempt from the higher rates of Stamp Duty as well as any stamp duty at all.

According to HMRC these include:

  • no money or other payment changes hands for a land or property transfer
  • property is left to you in a will
  • property is transferred because of divorce or dissolution of a civil partnership
  • you buy a freehold property for less than £40,000
  • you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
  • you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential or non-residential SDLT threshold
  • you use alternative property financial arrangements, for example to comply with Sharia law

For the additional premium rate, these include:

  • If you buy a property with an annex or an additional dwelling in the grounds, so long as the main property is worth at least two thirds of the overall price.
  • If you buy a plot of land without a property already on it
  • If you buy a mixed-use property as your additional property – e.g. a restaurant, shop or office with a dwelling above

 

For more advice on exemptions we advise speaking to a qualified financial advisor.


Can I offset the cost of Stamp Duty?

The good news is if you are considering purchasing a holiday let, there are many tax advantages and benefits you may be eligible for which will help offset some of your losses.

Read about the tax advantages of holiday letting in our Furnished Holiday Lettings Tax Guide.


Additional resources

Welsh Government

HMRC

Zoopla

* At the time of publishing (29 January 2021), Menai Holiday Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s financial affairs are different, further advice should be sought from a financial advisor.

 

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