Are you thinking about buying a second home?
If you’re thinking of buying a second home, there are some things that you must take into consideration when assessing your financial situation, today we look at one small but very important consideration, SDLT. We are looking only at residential properties only for the purposes of this article.
Firstly, what exactly is SDLT?
SDLT stands for ‘Stamp Duty Land Tax’ and it can hurt if not properly budgeted into your purchase price. SDLT is a tax which the purchasers of residential property are required to pay. The amount of tax due tax is based on a percentage of value of the property. (see figure below of Stamp Duty rates)
The SDLT tax system changed in 2016. If you are buying your first property and the purchase price is under £125,000 there are is no Stamp Duty. However, if the property costs more than £125,000 this means you’re liable to pay SDLT which applies to both houses and flats/apartments. The tax is due whether you purchase with pay cash or with the assistance of a mortgage. Calculations can be tricky due to the layered method of applying the tax but there are many calculators online if you are in doubt.
How much is Stamp Duty?
Stamp Duty rates today:
|Purchase price||Stamp Duty rate on first properties||Stamp Duty rate on additional properties|
|£925,001- £1.5 million||10%||13%|
|Over £1.5 million||12%||15%|
*Second properties under £40,000 are not subject to the higher rates.
Second home buyers- implications
Houses in coastal towns and scenic areas of Cornwall can be very expensive and way above the county average. According to Rightmove, on average house prices in Cornwall are around £249,617. If purchasing your first property according to this average price of houses, you will pay almost £5000. Stamp Duty. If it is an additional property you will have to pay almost an additional £7,500. This is significant and can be off putting especially if you are on a tight budget!
If you are thinking on buying a second home, make sure you understand SDLT. If you do not pay SDLT within a specific period you may be subject to extra penalties and interest. There are also scenarios in which you may not have to pay SDLT. If you are unsure or do not understand SDLT, do not hesitate to seek advice from your accountant or solicitor.