Table of Contents
When I retire, I want to sell my house and move to another area.
If I buy a new home before selling my old one, will I break the second home tax rules?
How long can I have an overlay before having to pay the additional tax?
I don’t want to risk being homeless, but I also don’t want to pay more than I have to. I live in Scotland, if that’s relevant.
Ask the Experts: Our reader is worried about having to pay additional taxes if he keeps his current home and buys a new one.
This is Money’s Ed Magnus responds: It is wise to consider the tax ramifications of moving house before selling your current home.
The tax you need to consider is the Land and Buildings Transaction Tax (LBTT), which replaced the UK Land Tax (SDLT) in Scotland from April 2015.
Like the SDLT in England, the tax is charged to the buyer when purchasing a property.
The tax must be paid on properties worth more than £145,000.
For properties worth more than that, the portion between £145,001 and £250,000 is taxed at 2 per cent; the part between £250,001 and £325,000 is taxed at 5 per cent; the part between £325,001 and £750,000 is charged at 10 per cent; and everything above that figure is taxed at 12 percent.
This means that someone buying a property worth £300,000 can expect to pay £4,600, while someone buying a property worth £900,000 can expect to pay £66,350.
What will probably worry our reader is something known in Scotland as an additional dwelling supplement (ADS), which is charged on top of the LBTT when someone buys a second property.
If they don’t sell their current home before buying another one, they will be responsible for the ADS.
In Scotland, ADS adds an additional 6 per cent to standard LBTT rates.
This means, for example, that someone buying a £300,000 second property will face a tax bill of £22,600 instead of £4,600 if it were their only home.
And someone buying a £900,000 second property will pay £120,350 in tax, instead of £66,350.
England has an equivalent to the ADS in the form of a surcharge, but it is charged at a much more generous 3 per cent.
As well as LBTT, our reader may also wish to consider the capital gains tax (CGT) implications if they were to later sell their current property.
For expert advice, we spoke to Majid Hussainpartner and head of private clients at the accounting firm Haysmacintyre, Alison Prydetax director of the law firm Anderson Strathern and Neela Chauhanpartner at the accounting firm UHY Hacker Young.
What are the capital gains tax considerations?
Neela Chauhan replies: When you sell your house in the UK, the main tax to consider is capital gains tax.
Tip: Neela Chauhan, partner at accounting firm UHY Hacker Young
However, if the property has been your main residence for the entire period and you have owned it, you are generally exempt from CGT due to private residence relief (PPR).
This means that you will not have to pay taxes on the profits made from the sale of your home.
Majid Hussain adds: The ideal is to have lived in your current home as the sole or main residence for the entire period of ownership to definitively benefit from the PPR.
There are some caveats to this that may restrict PPR relief.
Generally speaking, the total land area (gardens and surrounding land) should not cover more than 0.5 hectares to be definitely completely covered by the PPR.
You must also not have used part of the property exclusively for business purposes or been absent for long periods, although some exceptions may apply.
PPR relief includes the last nine months of ownership, meaning you can live elsewhere for nine months before selling the property and the gain will be fully covered by the relief.
What about LBTT?
Taxes: Majid Hussain of accounting firm Haysmacintyre answers our reader’s question
Majid Hussain replies: LBTT is payable when purchasing residential property in Scotland. The amount is based on the purchase price and is paid within 30 days of completion.
If you buy a second residential property in Scotland, you will also need to pay an additional dwelling surcharge, although some exceptions apply.
ADS is charged at 6 percent of the purchase price of the new property.
Therefore, a property costing £500,000 would incur an LBTT of £23,350 and an ADS of £30,000.
Alison Pryde adds: It has raised what has become a common concern in recent years: the potential tax cost of buying a new home before selling your current one.
ADS is applied to the total purchase price, so this can substantially increase the cost of purchasing your new home.
To avoid paying ADS, the sale of your current home must be completed on or before the same day you receive the keys to your new home.
If it is not possible to schedule your sale and purchase in this way and there is a period in which you own both homes, then ADS must be paid.
Get it right: Alison Pryde, of law firm Anderson Strathern, says ideally the purchase and sale of your home should be completed on the same day.
It is possible to claim a refund of the ADS paid if you sell your old home within 36 months of purchasing your new home.
This allows some flexibility to avoid becoming homeless as long as you have the funds available to meet the ADS liability.
However, it is important to note that if you do not sell your current home within the 36 month period, you cannot claim the ADS refund and the additional tax will be a permanent cost of the move.
In practice, most solicitors will aim to complete the purchase and sale on the same day, thus avoiding the risk of homelessness and an additional tax charge.
If this is not possible, careful planning and timing is crucial to ensure that no more taxes are paid than necessary.
Are SDLT rules different in England?
Ed Magnus adds: In England, removal companies currently pay no SDLT up to a value of £250,000, and first-time buyers are exempt from the tax unless their property is worth more than £425,000.
On 31 March 2025, the threshold for home-movers who are not first-time buyers will be reduced again to £125,000.
Under the current stamp duty system, the part of the purchase price of a property between £250,001 and £925,000 sees tax charged at 5 per cent, between £925,001 and £1.5 million rises to 10 per cent, and Above £1.5 million is 12 per cent of the purchase price charged.
Buyers and owners of second homes typically pay an additional 3 percent on top of these fees.
How would this affect our readers if they were in England?
Neela Chauhan replies: Regarding SDLT, if you buy a new home before selling your current one, you may have to pay an additional 3 percent surcharge on top of the standard SDLT rates because it would be considered a second home.
To avoid this additional fee, you should sell your current home before or at the same time you purchase your new one.
If this is not possible and you end up paying the higher rate, you can claim an additional 3 per cent SDLT rebate if this previous main residence is sold within 36 months of purchasing the new one.
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
