How to duck the higher rate of stamp duty

The higher rate of stamp duty on second properties comes with several exceptions, says Sarah Moore. Here's what they are.

Boris Johnson plastering a wall © Photo by Julian Makey/Shutterstock

Johnson wants to axe stamp duty on houses worth less than £500,000

The higher rate of stamp duty on second properties comes with several exceptions, syas Sarah Moore. Here's what they are.

Prime ministerial hopeful Boris Johnson wants to overhaul stamp duty. He has proposed axing it on properties worth less than £500,000 and lowering the rate on properties worth more than £925,000. Whether or not he sticks to this pledge, it's worth knowing the stamp-duty exemptions that currently exist.

One aspect of stamp duty that comes with several exemptions is the higher rate due on the purchase of second homes. This applies if, at the end of the day on which the transaction takes place, you own more than one property.

Importantly, however, it doesn't apply if you own more than one property but the property you are buying is replacing your main residence, if that is being sold. Moreover, if you buy a new home, but still own your previous main residence, you can claim a refund of the higher rate if you sell it within the next three years. Just note that you need to claim your refund within 12 months of the sale of the previous residence or within 12 months of when you file your stamp-duty tax return, whichever is later.

Somewhat confusingly, there is another loophole that applies where someone is buying a new main residence, but not actually replacing a current main residence that they own. Normally in this situation, you would have to pay the higher rate if you happen to own other properties.

However, if, within the previous three years you have sold a main residence, you are also entitled to avoid the surcharge. This particular loophole could be helpful for buy-to-let landlords who are currently living in rented accommodation, for instance.

A slightly less complicated exception may be of use if you have recently inherited property. The additional stamp-duty levy will also not apply if you are buying a second home but the interest you have in another property is a less-than 50% share of a property that you inherited within the previous 36 months.

Finally, it's useful to know the types of transaction that attract commercial, rather than residential, stamp-duty rates. Commercial rates range from 0% for the value of a property between £0 and £150,000, 2% for £150,001 to £250,000 and 5% on a value above £250,000. This compares to residential rates, which can go up to 15% for value more than £1.5m. Examples of non-residential transactions include the purchase of mixed-use properties (so if you bought a building made up of a flat above a shop), and the purchase of six or more residential properties in one go.

Recommended

How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020
What’s behind New Zealand’s runaway house prices?
Property

What’s behind New Zealand’s runaway house prices?

House prices in New Zealand have hit record high and show no sign of slowing down. Nicole Garcia Merida looks at what’s going on.
16 Apr 2021
Properties for sale with mountain views
Houses for sale

Properties for sale with mountain views

From a private residential estate in Pitlochry, Perthshire, to a family house in Santa Barbara, California, eight of the best properties with mountain…
16 Apr 2021
What’s in Biden’s global corporation tax proposals?
Global Economy

What’s in Biden’s global corporation tax proposals?

US president Joe Biden’s administration recently proposed a universal model for taxing global companies. Saloni Sardana looks at what's involved.
13 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021