Do you need to pay Stamp Duty on a Buy to Let property? How do Stamp duty bands work for homes that you buy as a rental investment rather than a residence?
With frequent changes in stamp duty, it can be daunting for property investors to fully understand how to budget.
Stamp duty is calculated as a percentage of the value of the property on a tiered basis. We will go through this further and give examples of how to work out how much you'd need before proceeding with an investment.
What Determines The Stamp Duty on a BTL Property in 2022?
The value of stamp duty depends on three main factors:
Whether you are a first-time buyer
Whether you own an existing property
If you are a Non-UK Resident
The Following Topics Are Covered Below
When Do I Pay Buy-To-Let Stamp Duty?
Why Do Buy-To-Let Properties Cost More in Stamp Duty?
In an attempt to tackle the housing shortage, the government implemented new stamp duty regulations in 2015.
At the time, thousands of first-time buyers were unable to get onto the property ladder because of rising private rent prices and a shortage of affordable homes.
The government hopes that stamp duty on buy-to-let properties and second homes will be more costly, thus reducing the attractiveness of these investments, leaving more stock for first-time buyers.
Rental costs may increase in consequence, making it even harder for first-time buyers to save up their deposits.
Understanding Stamp Duty for Landlords
Stamp Duty for First-Time Investors
First-time buyers who buy a buy-to-let are usually eligible for the same SDLT reduction as other first-time buyers.
You'll be eligible for 0% on £425,000 of purchase price and a 5% surtax on the next £200,000 (i.e., £625,001 to £625,000). HMRC October 2022
You Currently Own At Least One Other Property
If you purchase a property and subsequently own more than one, you’ll have to pay a 3% SDLT surcharge.
The majority of buy-to-let purchases are made by people who already own homes, so the applicable rates of SDLT start at 3% up to £250,000 of the property’s value up to £1.5 million above £250,000.
You're Not A UK Resident
You'll be charged SDLT if you're not a UK resident for SDLT purposes (i.e., you've spent more than 182 days outside of the UK in the past 12 months).
In other words, if you're an overseas investor and you already own at least one other home, the SDLT rate on the second property is as follows:
5% on the first £250,000 of its value,
0% on the next £675,000 (i.e., £250,000 to £950,000)
15% on the next £575,000 (i.e., £950,000 to £1.5 million)
and 17% on any excess.
Extract HMRC for a Single Property (October 2022)
Exemptions for Stamp Duty on Buy to Lets
Second properties under £40,000 and all caravans, mobile homes and houseboats are exempt from additional stamp duty.
There are no other buy-to-let-specific stamp duty exemptions, but the same exemptions and reliefs generally apply, including:
1. First-Time Buyer Relief
As long as it the only investment property you own, you won’t have to pay the higher rates of stamp duty.
2. Multiple dwelling relief (reducing the tax payable when buying several properties in the same transaction)
If you buy a property it includes more than one dwelling, you may be able to receive tax reduction.
The HMRC calculates the tax rate as follows: The total amount of the purchase divided by the number of homes. The tax is then calculated on this divided figure multiplied by the number of homes.
3. Relief from the non-UK resident surcharge for Crown servants and their spouse or civil partner (who will then pay the same SDLT as a UK resident)
4. Relief for Charities (who will pay no SDLT)
Buy To Let Landlord Stamp Duty Relief
Unfortunately, you cannot claim back the stamp duty paid for your buy-to-let as a business expense in your tax return.
It is, however, possible to claim back stamp duty in certain situations:
When you sell your buy-to-let property within three years of buying it, which then becomes the only property you own, you can claim back the 3% stamp duty surcharge.
If you decide to sell your buy-to-let property, you can deduct the stamp duty originally paid from the taxable gain you make from the sale. This may reduce your CGT bill.
When Do I Pay Buy-To-Let Stamp Duty?
You must submit your stamp duty return to HM Revenue within 14 days of the date you purchase a house (usually the day you complete the transaction).
Your solicitor will probably file the return and pay the stamp duty for you, but you should make sure that your solicitor has it.
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice. Accelerated Finance Limited only considers applications for commercial or investment properties. Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract. Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.