STAMP DUTY ON BUY TO LET PROPERTY: HOW MUCH DO I PAY?
Alexandra Ventress
December 19th, 2023
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When it comes to stamp duty, it is a tax that is fairly new for buy to let properties and second homes. It has the ability to make your next investment purchase expensive, especially with the stamp duty surcharge.
In this blog post, we will be looking at stamp duty on buy to let property, how much btl stamp duty you could end up paying, and how stamp duty on buy to let property can affect your next investment purchase.
Stamp duty on buy to let property is referring to Stamp Duty Land Tax (SDLT), a tax that is applied to rental properties. Unless you are a first-time buyer purchasing a property below £300,000, then you will be familiar with the stamp duty charge. It is charged in bands and increases as the property price does.
As an investor, you may be interested in purchasing a buy to let property. More often than not, this will be classed as a ‘second property’, as a second property is any property you own alongside your own.
Whilst this may not be the case for every investor, as it is possible to take out a buy to let mortgage without already owning a home, however many lenders will often refuse to lend a buy-to-let mortgage to a non-homeowner.
Regardless of the circumstance, you will need to pay an additional rate of stamp duty on buy to let purchase if it is your second property. You will be required to pay this on top of your standard stamp duty rate as it is a surcharge.
In a similar fashion to regular stamp duty, second home stamp duty is charged at a tiered system, At the moment, you will pay an additional 3% on the first £125,000 and a further 5% on anything that falls within £125,001 to £250,000. These rates currently sit at:
| Property price | Standard stamp duty rate | Additional buy-to-let rate |
|---|---|---|
| £0 – £125,000 | 0% | 3% |
| £125,001 – £250,000 | 2% | 5% |
| £250,001 – £925,000 | 5% | 8% |
| £925,001 – £1.5m | 10% | 13% |
| £1.5m+ | 12% | 15% |
If you are purchasing a property in Wales or Scotland then you will be required to pay a higher rate. However, it is worth bearing in mind that Welsh stamp duty (LTT) and Scottish stamp duty 9LBTT) are charged at different rates for the purchase of additional property.
How much additional stamp duty will I pay?
Whilst a 3% surcharge is not the most costly on paper, when it is applied to a property’s price it can become a little more daunting. You should also keep in mind that since the majority of properties sell for over £125,000, you may find that you rise through the higher bands of SDLT fairly quickly.
An example of this would be if you purchase a property for £250,000, then you will be required to pay 3% on the first £125,000, then 5% on the remaining amount above £125,000.
| Rate | Amount | Rate | Tax you pay |
|---|---|---|---|
| £0 – £125,000 | £125,000 | 3% | £3,750 |
| £125,000 – £230,000 | £105,000 | 5% | £5,250 |
| Total = 9,000 |
It is worth noting that if you are purchasing a property that is selling for over £250,001, then you will enter an even higher stamp duty on buy to let bracket.
Property owners looking to run the rented property must get a specialist landlord insurance policy to ensure their mortgage provider has peace of mind.
As far as buy to let and stamp duty are concerned, there are no specific exemptions. However, there are some exceptions and reliefs that can apply as they would with any other property purchase, such as:
- Relief for charities. They are not required to pay SDLT.
- First time buyer relief.
- Relief from the non-UK resident surcharge for Crown servants and their civil partners or spouses. They will then pay the same stamp duty land tax as UK resident would.
- Multiple dwelling relief. This is used as a way to reduce the tax payable when buying several properties in the same transaction.
Are there stamp duty exemptions?
If the investment property that you are purchasing is worth less than £40,000, then there will be no stamp duty to play.
If you are purchasing a caravan, mobile home, or houseboat then you will not be subject to an additional stamp duty rate.
As we have already mentioned, if the property you are purchasing is the first property you will own then there will be an exemption.
When it comes to buy-to-let properties, an aspect you will need to become familiar with is buy-to-let stamp duty rates, especially if your plan of action is to purchase another property to live in whilst letting out the home you currently live in.
You may already be familiar with the rules surrounding purchasing a second residential property and stamp duty, however, if you are not, read on. As it currently stands in England and Wales if you are buying a second home or a buy-to-let property that is not replacing your main residence, then you will be required to pay an extra 3% stamp duty surcharge on top of your current SDLT rates.
But if you plan on switching your current residential mortgage to a buy-to-let mortgage and are not buying another property, then there shouldn’t be any stamp duty for buy-to-let implications. This is because stamp duty charges are for property purchases and are not applied to mortgage term changes.
Is it illegal to avoid stamp duty?
It is a serious criminal offence to either avoid stamp duty or to conspire to do so. However, there are legal routes you can take to help lessen stamp duty but these should not be rushed into without serious thought and consideration.
Whilst it is not always recommended, there are ways that you can avoid btl stamp duty on a property. This is usually done by avoiding putting your name on the title deeds for the property and instead having a family member own the property. You can do this by getting a family offset mortgage, gifting them the money for a deposit, or by being a guarantor for the mortgage.
However, if this is a route that you would like to explore, then you should be wary that your family members would be the legal owners of the property.
Another route that you may wish to explore is if you are a first time buyer you will not have to pay stamp duty. So, in theory, you may be able to use buy-to-let as your first property. However, as we have already mentioned, you may struggle to get a mortgage.
It is possible to claim a btl stamp duty refund if you have already purchased the property but you are intending to sell your current residence. This will mean you only own one property and so will no longer be the recipient of SDLT.
If this is an avenue that you are thinking of exploring, then you will have three years from the day of purchase to sell your original property. Any property sales after this time period will not qualify for a refund.
This being said, there are exceptions if you were unable your property due to mitigating circumstances. The government’s website provides a full list of these circumstances, but COVID-19 and public authority action that prevent the sale are both listed.
Igf you wish to claim back stamp duty, you will have to do so through HMRC. You will need to present information about both properties as well as the amount you are claiming. If your refund is accepted, then you should receive it within 15 working days.
BUY TO LET STAMP DUTY FAQS
Stamp duty tax can be a complicated subject, and you are bound to have some questions about SDLT in relation to your investment property. Below are some common questions regarding stamp duty on buy to let purchase:
As far as stamp duty is concerned, your main residence is the property where you and your family spend the majority of their time. Exactly where your main residence will be is decided by the taxman and is based upon where you work, are registered with a doctor and where you vote.
Married couples are viewed as a single unit when it comes to tax, so regardless of whose name the transaction is in, if you own extra properties then stamp duty will apply.
If you and your partner are unmarried, then you may not have to pay stamp duty should only one of you be named on the title deed of the main residence and the other investment property is bought in the other partner’s name alone.
If you have inherited a property, then there will be no stamp duty to pay on it. This is because it is not due on inherited homes. However, if you go on to purchase a second property whilst already owning one, then you may have to pay the additional rate.
Stamp duty is a tax that is only payable in the UK, so if your investment property is located abroad then you will not need to pay it.
If own a property that is located abroad, then the extra rate of stamp duty will still apply to you.
Alexandra Ventress
December 19th, 2023
Share this post
Start your property portfolio today!
When it comes to stamp duty, it is a tax that is fairly new for buy to let properties and second homes. It has the ability to make your next investment purchase expensive, especially with the stamp duty surcharge.
In this blog post, we will be looking at stamp duty on buy to let property, how much btl stamp duty you could end up paying, and how stamp duty on buy to let property can affect your next investment purchase.
Stamp duty on buy to let property is referring to Stamp Duty Land Tax (SDLT), a tax that is applied to rental properties. Unless you are a first-time buyer purchasing a property below £300,000, then you will be familiar with the stamp duty charge. It is charged in bands and increases as the property price does.
As an investor, you may be interested in purchasing a buy to let property. More often than not, this will be classed as a ‘second property’, as a second property is any property you own alongside your own.
Whilst this may not be the case for every investor, as it is possible to take out a buy to let mortgage without already owning a home, however many lenders will often refuse to lend a buy-to-let mortgage to a non-homeowner.
Regardless of the circumstance, you will need to pay an additional rate of stamp duty on buy to let purchase if it is your second property. You will be required to pay this on top of your standard stamp duty rate as it is a surcharge.
In a similar fashion to regular stamp duty, second home stamp duty is charged at a tiered system, At the moment, you will pay an additional 3% on the first £125,000 and a further 5% on anything that falls within £125,001 to £250,000. These rates currently sit at:
| Property price | Standard stamp duty rate | Additional buy-to-let rate |
|---|---|---|
| £0 – £125,000 | 0% | 3% |
| £125,001 – £250,000 | 2% | 5% |
| £250,001 – £925,000 | 5% | 8% |
| £925,001 – £1.5m | 10% | 13% |
| £1.5m+ | 12% | 15% |
If you are purchasing a property in Wales or Scotland then you will be required to pay a higher rate. However, it is worth bearing in mind that Welsh stamp duty (LTT) and Scottish stamp duty 9LBTT) are charged at different rates for the purchase of additional property.
How much additional stamp duty will I pay?
Whilst a 3% surcharge is not the most costly on paper, when it is applied to a property’s price it can become a little more daunting. You should also keep in mind that since the majority of properties sell for over £125,000, you may find that you rise through the higher bands of SDLT fairly quickly.
An example of this would be if you purchase a property for £250,000, then you will be required to pay 3% on the first £125,000, then 5% on the remaining amount above £125,000.
| Rate | Amount | Rate | Tax you pay |
|---|---|---|---|
| £0 – £125,000 | £125,000 | 3% | £3,750 |
| £125,000 – £230,000 | £105,000 | 5% | £5,250 |
| Total = 9,000 |
It is worth noting that if you are purchasing a property that is selling for over £250,001, then you will enter an even higher stamp duty on buy to let bracket.
Property owners looking to run the rented property must get a specialist landlord insurance policy to ensure their mortgage provider has peace of mind.
As far as buy to let and stamp duty are concerned, there are no specific exemptions. However, there are some exceptions and reliefs that can apply as they would with any other property purchase, such as:
- Relief for charities. They are not required to pay SDLT.
- First time buyer relief.
- Relief from the non-UK resident surcharge for Crown servants and their civil partners or spouses. They will then pay the same stamp duty land tax as UK resident would.
- Multiple dwelling relief. This is used as a way to reduce the tax payable when buying several properties in the same transaction.
Are there stamp duty exemptions?
If the investment property that you are purchasing is worth less than £40,000, then there will be no stamp duty to play.
If you are purchasing a caravan, mobile home, or houseboat then you will not be subject to an additional stamp duty rate.
As we have already mentioned, if the property you are purchasing is the first property you will own then there will be an exemption.
When it comes to buy-to-let properties, an aspect you will need to become familiar with is buy-to-let stamp duty rates, especially if your plan of action is to purchase another property to live in whilst letting out the home you currently live in.
You may already be familiar with the rules surrounding purchasing a second residential property and stamp duty, however, if you are not, read on. As it currently stands in England and Wales if you are buying a second home or a buy-to-let property that is not replacing your main residence, then you will be required to pay an extra 3% stamp duty surcharge on top of your current SDLT rates.
But if you plan on switching your current residential mortgage to a buy-to-let mortgage and are not buying another property, then there shouldn’t be any stamp duty for buy-to-let implications. This is because stamp duty charges are for property purchases and are not applied to mortgage term changes.
Is it illegal to avoid stamp duty?
It is a serious criminal offence to either avoid stamp duty or to conspire to do so. However, there are legal routes you can take to help lessen stamp duty but these should not be rushed into without serious thought and consideration.
Whilst it is not always recommended, there are ways that you can avoid btl stamp duty on a property. This is usually done by avoiding putting your name on the title deeds for the property and instead having a family member own the property. You can do this by getting a family offset mortgage, gifting them the money for a deposit, or by being a guarantor for the mortgage.
However, if this is a route that you would like to explore, then you should be wary that your family members would be the legal owners of the property.
Another route that you may wish to explore is if you are a first time buyer you will not have to pay stamp duty. So, in theory, you may be able to use buy-to-let as your first property. However, as we have already mentioned, you may struggle to get a mortgage.
It is possible to claim a btl stamp duty refund if you have already purchased the property but you are intending to sell your current residence. This will mean you only own one property and so will no longer be the recipient of SDLT.
If this is an avenue that you are thinking of exploring, then you will have three years from the day of purchase to sell your original property. Any property sales after this time period will not qualify for a refund.
This being said, there are exceptions if you were unable your property due to mitigating circumstances. The government’s website provides a full list of these circumstances, but COVID-19 and public authority action that prevent the sale are both listed.
Igf you wish to claim back stamp duty, you will have to do so through HMRC. You will need to present information about both properties as well as the amount you are claiming. If your refund is accepted, then you should receive it within 15 working days.
BUY TO LET STAMP DUTY FAQS
Stamp duty tax can be a complicated subject, and you are bound to have some questions about SDLT in relation to your investment property. Below are some common questions regarding stamp duty on buy to let purchase:
As far as stamp duty is concerned, your main residence is the property where you and your family spend the majority of their time. Exactly where your main residence will be is decided by the taxman and is based upon where you work, are registered with a doctor and where you vote.
Married couples are viewed as a single unit when it comes to tax, so regardless of whose name the transaction is in, if you own extra properties then stamp duty will apply.
If you and your partner are unmarried, then you may not have to pay stamp duty should only one of you be named on the title deed of the main residence and the other investment property is bought in the other partner’s name alone.
If you have inherited a property, then there will be no stamp duty to pay on it. This is because it is not due on inherited homes. However, if you go on to purchase a second property whilst already owning one, then you may have to pay the additional rate.
Stamp duty is a tax that is only payable in the UK, so if your investment property is located abroad then you will not need to pay it.
If own a property that is located abroad, then the extra rate of stamp duty will still apply to you.
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