It’s just over three and a half years since the then chancellor, George Osborne, announced in the Autumn Statement that the government would be introducing a new stamp duty on second homes.
At the time he said: "People buying a home to let should not be squeezing out families who can’t afford a home to buy. So I am introducing a new rate of stamp duty that will be three per cent higher on the purchase of additional properties like buy-to-lets and second homes.”
Few would argue with the sentiment behind this, but our analysis shows that it is in fact easily possible to save on stamp duty costs by buying two homes, rather than trading up to one. All of which flies in the face of the chancellor’s intent. Here’s how we did it.
A couple in their late 30’s with two young children have just sold their house in Mysore Road, SW11 – a real-life road, a real-life property just around the corner from LonRes! The property had three bedrooms, a 19’11” x 19’ garden. In all there was 1,990 sq ft of space and sold at £1,565,000.
They’d owned it for some years and with money saved, they had a budget of £2,500,000 to upsize and buy their next home.
However, the potential stamp duty (SDLT) charges of £213,750 on a £2.5m home proved to be too onerous, so the decision was made to find a new house in the home counties and a pied-à-terre in town – the best of both worlds.
It didn’t take long to find a six bedroom house in Cranleigh – again, a real-life house in a real-life village. The house more than met their growing family needs with six bedrooms, a games room, swimming pool and 1.35 acres and all in good condition.
Not only that, it was within 10 miles of Guildford railway station and a 35 minutes commute direct into London Waterloo. After some haggling – obviously! - they bought it for £1,250,000 with an SDLT liability of £68,750.
For their pied-à-terre, the family opted for a two bedroom, two bathroom flat in a gated development in Petergate, SW11. They paid £450,000 (no haggling on this one!) which meant a total stamp duty (including the second home 3% levy) of £26,000.
The total SDLT they paid on their two homes out was £94,750.
So, to recap, had the family bought one home at £2.5m their stamp duty bill would have amounted to £213,750, but in splitting the same £2.5m into two homes they’ve saved a not inconsiderable £119,000. They also have two properties, retained a foot in the London market and have plenty left over to pay for a first class season ticket from Guildford costing £7,600 – or the £4,500 standard fare.
Indeed, even spending the exact same amount (£2.5 million) on two properties at £1.25 million each would still mean a £38,750 saving of in stamp duty. Now there’s a thought!
Table: Cost of buying London and/or the country
//php print ($title); ?>
Source: LonRes – this analysis does not account for additional costs of owning two homes or any tax obligations at point of sale.
LonRes now lists properties outside of London, connecting the country with the capital. Find out more here.
About the author
William co-founded LonRes with Anthony Payne in 1999. He began his property career in the mid 1980s with a small family firm based in Knightsbridge. In 1992, he joined forces with Charles Boston, establishing Boston Carrington Pritchard based in Sloane Street, where he specialised in Landlord and Tenant work. William is a director of CLEA Ltd, which owns The London Magazine, and remains a consultant to Boston Radford Surveyors.