Stamp duty can be an additional charge on top of the purchase price of the property, so it makes sense to try and find ways to avoid paying it if you can.
If you are wondering how to avoid stamp duty on a second home, there are several methods you could try and use to achieve this:
1. Buy Property Under £40,000
The first way you can start investing in buy-to-let property is to purchase property that is worth less than £40,000, as this is exempt from stamp duty in England and Northern Ireland.
However, the chances of you getting a quality buy-to-let property for that kind of price are low. It is more likely you would be buying land with that kind of budget, allowing you to build a freehold property rather than paying for a leasehold one.
Even if you were to buy a property for under £40,000, the likelihood is that you would need to make extensive renovations to it in order for it to be a viable buy-to-let property.
The kind of budget you would need to build a new home on the land would far outweigh the price of purchasing an already constructed property, so this might not be the best way to avoid second home stamp duty.
2. Buy a Mobile Home or Caravan
One method of buy-to-let investing that you might have overlooked is to rent out holiday homes like caravans or houseboats.
This is a much cheaper way of buying a new home, even if it is not as spacious or capable of high yields as a buy-to-let investment property.
Given the lower budget required, you likely won’t need a buy-to-let mortgage so you could potentially use the mobile home yourself when not renting it out to holiday goers, giving you a versatile second home.
However, you won’t be able to collect as much rental income from a mobile home, nor will you be able to benefit as much from capital growth. This is a much smaller investment, so if you want to make a larger passive income then this is not the option for you.
3. Buy as a First-Time Buyer
If you are in a lucky enough position to be investing in buy-to-let as a first-time homeowner, you can benefit from the additional tax relief you gain from this position.
This can save you a considerable amount of money on stamp duty, as rates for first-time buyers are far less than those buying an additional property.
However, buy-to-let mortgages often require borrowers to be homeowners already to prove they know how to run a property and repay a mortgage, so you may find the money you save on stamp duty being spent on higher interest rates instead. That’s if you are even accepted for a mortgage in the first place, as many lenders won’t offer BTL mortgages to first-time buyers.
4. Buy During a Stamp Duty Holiday
Stamp duty holidays are sometimes called by the government as a remedy for a weakening housing market. The reduced costs help to boost sales and stabilise the market after times of uncertainty.
The most recent stamp duty holiday was called in 2021 as a response to the COVID-19 pandemic, to try and boost a sluggish housing market. This had the desired effect, as house prices rose to record levels in 2022.
Given the current health of the housing market, a stamp duty holiday is unlikely barring outside factors, so you’ll probably be waiting a while before you can take advantage of this method.
5. Buy For Someone Else
The final method of avoiding stamp duty you could use is to buy a property in someone else’s name, so long as they do not already own property themselves.
You can do this by putting the property solely in their name, as the government will class you as also owning the property if your name is on the deeds.
Instead, sign the contract for the property as a guarantor, so you still have some control.
With this method, you must only give property to someone you trust deeply, as you will essentially be handing over control of the property to this person once their name is on the deeds.
