Buy-to-Let Stamp Duty
If you’re buying a buy-to-let property as a second home in the UK, you’ll be subject to a stamp duty surcharge. Calculating the exact amount of stamp duty can be complex, as it varies based on individual circumstances. In this guide, we’ll break down the key factors to help you determine the applicable rate for your situation. We’ll cover:
Do you pay stamp duty on a buy-to-let property?
Yes, if the value of the buy-to-let property exceeds £40,000 and it adds to your existing property portfolio, you will need to pay stamp duty. Buying a property for rental purposes is considered acquiring a 'second property' in addition to your primary residence.
In England and Northern Ireland, this triggers the additional stamp duty rate, which includes a minimum 3% surcharge on top of the standard stamp duty rate.
What is buy-to-let stamp duty?
Stamp Duty Land Tax (SDLT) is a tax payable to HMRC when purchasing a property in England or Northern Ireland. In Scotland, this tax is known as Land and Buildings Transaction Tax (LBTT), while in Wales, it’s referred to as Land Transaction Tax (LTT).
For all these taxes, higher rates apply to additional properties, such as buy-to-let investments.
Buy-to-let stamp duty rates in England and Northern Ireland
Property Price | Buy-to-let stamp duty rate |
£0-125,000 | 3% |
£125,001-£250,000 | 5% |
£250,001-£925,000 | 8% |
£925,001-£1.5m | 13% |
Over £1.5m | 15% |
Buy-to-let LBTT rates in Scotland
Property Price | Buy-to-let LBTT rate |
£0-145,000 | 4% |
£145,001-£250,000 | 6% |
£250,001-£325,000 | 9% |
£325,001-£750,000 | 14% |
Over £750,000 | 16% |
Buy-to-let LTT rates in Wales
Property Price | Buy-to-let LTT rate |
£0-180,000 | 4% |
£180,001-£250,000 | 7.5% |
£250,001-£400,000 | 9% |
£400,001-£750,000 | 11.5% |
£750,000-£1.5m | 14% |
Over £1.5m | 16% |
Why do buy-to-let properties cost more in stamp duty?
In 2015, the government introduced higher stamp duty rates for buy-to-let properties and second homes to address the housing crisis. Rising rental costs and a shortage of affordable homes were making it difficult for first-time buyers to enter the market.
By increasing stamp duty on buy-to-let properties, the government aimed to reduce the attractiveness of these investments, thereby freeing up more housing opportunities for first-time buyers.
When do you pay buy-to-let stamp duty?
You must submit your buy-to-let stamp duty return to HMRC within 14 days of completing the property purchase. This completion date is usually when the transaction is finalised.
While your conveyancing solicitor typically manages the filing and payment of stamp duty on your behalf, it is your legal responsibility to ensure it is done. Confirm with your solicitor that they are handling this task. If they do not, you must file the SDLT return and pay the tax directly to HMRC within the 14-day deadline.
Are there any buy-to-let stamp duty exemptions?
Several exemptions apply to buy-to-let stamp duty:
Properties under £40,000: No additional stamp duty applies.
Caravans, mobile homes, and houseboats: These are exempt from the additional rate.
First property: If the buy-to-let property is your first and only property, standard rates apply instead of the additional rate.
Multiple dwellings relief: This relief reduces tax liabilities when purchasing several properties in a single transaction.
Charities: Charitable organisations are fully exempt from SDLT.
Can you claim back buy-to-let stamp duty?
You may be eligible for a stamp duty refund if you sell your current residence and become a sole property owner. To qualify, you must sell your original property within three years of purchasing the buy-to-let property.
Additionally, when selling your buy-to-let property, you can offset the stamp duty paid against the taxable gain from the sale, which may help reduce your capital gains tax (CGT) liability.
To apply for a refund on stamp duty for your second home, you’ll need to submit a claim to HMRC, providing details about both properties and the refund amount you’re seeking.
Do you pay buy-to-let stamp duty on a property abroad?
The additional stamp duty rate does not apply to properties purchased abroad, as it is only applicable to UK property. However, you should check the local tax regulations in the country where you’re buying the property, as different countries have their own tax obligations for real estate transactions.
Do you pay buy-to-let stamp duty on an inherited property?
Inherited properties are exempt from stamp duty. Although, if you purchase an additional property while still owning the inherited one, you may be subject to the additional stamp duty rate for having multiple properties.
How a broker can help with buy-to-let stamp duty
When evaluating a buy-to-let property investment, including stamp duty costs in your calculations is vital, as these expenses can significantly affect your financial decision. We strongly recommend consulting a mortgage broker before committing to a buy-to-let property. A broker can ensure the investment aligns with your financial goals and individual circumstances.
If you're unsure about managing mortgage and stamp duty costs, a broker can provide expert advice here as well. They can help with complex tax issues, calculate the appropriate SDLT rate, and answer questions about affordability and mortgage eligibility based on your credit score and landlord experience.
At The Mortgage Genie, our team comprises expert mortgage brokers specialising in buy-to-let mortgages. Feel free to reach out to us at 01915809890 and we'll connect you with a professional tailored to your specific needs who can help you with the entire process from beginning to end. And why not see how much you could borrow up to today by using our buy-to-let mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.
