Business

Guide to the three per cent stamp duty surcharge on second homes

Anyone buying a second home will pay a higher rate of stamp duty than someone buying a property which will be their main residence
Anyone buying a second home will pay a higher rate of stamp duty than someone buying a property which will be their main residence Anyone buying a second home will pay a higher rate of stamp duty than someone buying a property which will be their main residence

QUESTION: I own my own home jointly with my wife and my eldest son is starting university next month. I am in the process of buying an investment property for him to live in when he is at university. Will I have to pay the additional 3 per cent stamp duty land tax (SDLT) charge on the purchase of this property?

ANSWER: From April 1 this year, anyone buying a second home for any reason will pay a higher rate of stamp duty than someone buying a property which will be their main home.

SDLT is a tax paid by home-buyers when they buy property or land. On your main home the tax is paid if the purchase price is over £125,000. The amount paid is assessed on a tiered basis.

What counts as a second home is anything other than your main residence – it could be a holiday let, a property bought as an investment or somewhere you are helping another family member to buy. The new surcharge will also apply even if the main home you currently own is overseas.

You will pay the increased duty on the investment property for your son if the property costs more than £40,000. For each tier you would pay a rate three percentage points higher. This means:

• On a property costing up to £125,000 you will pay 3 per cent, rather than 0 per cent.

• On a property costing £125,000-£250,000 you pay 5 per cent, rather than 2 per cent.

• On a property costing £250,000-£925,000 you pay 8 per cent, rather than 5 per cent.

• On a property costing £925,000-£1.5m you pay 13 per cent, rather than 10 per cent.

• On a property costing £1.5m-plus, you pay 15 per cent, rather than 12 per cent.

So a house costing £100,000 would have a bill of £3,000. On a £200,000 property you would pay £7,500 (3 per cent on the first £125,000 then 5 per cent on the next £75,000), and if you were spending £350,000 on a second home you would pay £18,000 (3 per cent on the first £125,000, 5 per cent on the next £125,000 then 8 per cent on the remaining £100,000).

Where parents buy a property for their child and are named on the deeds while already owning a property, you will be charged the additional stamp duty.

Helping your child out with a gift of a deposit will not be a problem but part-owning the property will create an additional tax charge. To avoid the additional stamp duty charge it would be necessary to have your son purchase the property in his name.

The new rates would even apply if you are buying a second property to replace your existing home, without selling your home first, you will need to pay the surcharge. However, you can request a refund if you sell your first home within three years.

It is also worth noting that the rate of capital gains (CGT) tax will still be 28 per cent on a future disposal of residential property as whilst the main rate of CGT was cut from 28 per cent to 20 per cent for higher rate taxpayers and to 10 per cent for basic rate taxpayers, however, this cut was not extended to include residential property.

:: Feargal McCormack (f.mccormack@pkffpm.com) is managing partner of PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.