Second Home Stamp Duty Guide

What is the Second Home Surcharge?

Since April 2016, buyers purchasing additional residential properties in England and Northern Ireland have had to pay an extra stamp duty surcharge. From April 2025, this surcharge increased from 3% to 5%.

The surcharge applies on top of the standard stamp duty rates, meaning you pay 5% extra on every band. For example, the first £125,000 (normally 0%) attracts 5% surcharge instead of being tax-free.

When Does the Surcharge Apply?

The 5% surcharge applies when you:

• Buy a second home or holiday home
• Purchase a buy-to-let investment property
• Buy through a company (companies always pay the surcharge)
• Already own a property (including overseas property) and buy another

Example Calculations

Here's how the surcharge affects stamp duty on different property prices:

Replacing Your Main Residence

If you're buying a new main residence but haven't sold your current home yet, you may still need to pay the surcharge initially. However, you can claim a refund if you sell your previous main residence within 36 months.

Exemptions

You may not have to pay the surcharge if:

• The property costs less than £40,000
• You're replacing your only or main residence (and sell within 36 months)
• The property is a mobile home, caravan, or houseboat
• You're inheriting a property (no SDLT on inheritance)

Regional Differences

The surcharge rates vary by UK region:

• England & Northern Ireland: 5% surcharge (SDLT)
• Scotland: 8% Additional Dwelling Supplement (ADS)
• Wales: Separate higher residential rates (LTT)

Financial Planning

The 5% surcharge significantly impacts your budget when purchasing additional properties. It's important to factor this into your overall financial planning and mortgage calculations. Many buyers underestimate the total cost including stamp duty, leading to financial strain later in the purchase process. Always get a full breakdown of all costs from your solicitor before proceeding with the purchase. Remember that the surcharge applies regardless of your income, employment status, or whether you plan to use the property yourself or rent it out.

Market Impact

The increase from 3% to 5% in April 2025 has had a noticeable effect on the buy-to-let market and second home purchases. Some investors have paused expansion plans due to higher upfront costs. However, demand remains strong in popular areas and for properties with high rental yield potential. The long-term rental returns may still justify the higher initial outlay, especially in areas with strong tenant demand and rising property values. Consider both short-term costs and long-term returns when making your investment decision.

Multiple Properties

If you own multiple properties and purchase another, you'll pay the surcharge on the new purchase regardless of how many properties you already own. There's no increased rate for third, fourth, or subsequent properties - the 5% surcharge applies to any additional property. However, each purchase incurs its own stamp duty liability, so planning your property acquisitions strategically over time can help manage cash flow. Consider timing purchases to align with property market cycles and your personal financial situation.

Holiday Homes

Holiday homes are treated exactly the same as second homes for stamp duty purposes. Whether you use it personally for weekends and holidays or keep it for occasional use, if you already own a main residence, you'll pay the 5% surcharge. The tax system doesn't differentiate between different types of second homes based on usage frequency or purpose. Ensure your solicitor understands the intended use of the property to provide accurate advice and avoid any misunderstandings with HMRC about property classification.

Planning Permission Changes

Converting a property to residential use or adding significant improvements can affect your stamp duty position. If you convert a commercial property to residential use, or if you make substantial changes that alter the property's classification, this may trigger stamp duty implications. Always seek professional advice before undertaking major renovations or conversions that could change how your property is classified for tax purposes. The timing of these changes relative to purchases can have significant financial consequences.

Divorce and Separation

When a marriage or civil partnership ends and property is transferred between former partners, special rules apply. Transfers following divorce or dissolution are generally exempt from stamp duty, provided they meet certain conditions. However, if you then purchase a new property as a single person while your former partner retains the family home, you may be considered to have an additional property and pay the surcharge. Legal advice is crucial in these situations to understand your tax position and avoid unnecessary payments.

Record Keeping

Keep detailed records of all property transactions, especially if you're claiming refunds or need to prove eligibility for reliefs. HMRC may request documentation for several years after the transaction. Save all correspondence, completion statements, and evidence of previous property sales if claiming a surcharge refund. Good record-keeping also helps when calculating capital gains tax when you eventually sell properties and need to account for all costs incurred during ownership.

Professional Advice

Stamp duty rules can be complex, especially when multiple properties, mixed use, or unusual circumstances are involved. While this guide provides general information, it's not a substitute for professional advice tailored to your situation. Engage an experienced solicitor or tax advisor who specialises in property transactions to ensure you're paying the correct amount and claiming any applicable reliefs. The cost of professional advice is often outweighed by potential tax savings and penalties avoided.