Buy-to-Let Stamp Duty
If you're purchasing a buy-to-let property as a second home in the UK, you'll be subject to a stamp duty surcharge. Determining the exact stamp duty owed can be complex, as it varies between buyers. In this guide we’ll outline the key factors involved to help you ascertain the applicable rate for your situation. We’ll go over:
Do you pay stamp duty on a buy-to-let property?
Yes, if the property's value exceeds £40,000 and the purchase would add another property to your ownership portfolio. When purchasing for letting purposes, it typically constitutes acquiring a 'second property.' This includes any property owned in addition to your primary residence. Referred to as the additional stamp duty rate in England and Northern Ireland, it entails a minimum 3% surcharge on top of the standard stamp duty.
What is buy-to-let stamp duty?
Stamp Duty Land Tax (SDLT) is a property tax payable to HMRC upon purchasing a property in England or Northern Ireland. In Scotland, the tax payable on property purchases is known as Land and Buildings Transaction Tax (LBTT). Similar to stamp duty, LBTT rates are higher for additional properties. Likewise, in Wales, the tax payable on property purchases is called Land Transaction Tax (LTT), with increased rates for additional properties.
Buy-to-let stamp duty rates in England and Northern Ireland
Property Price | 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% |
Over £1.5m | 12% | 15% |
Buy-to-let LBTT rates in Scotland
Property Price | LBTT rate | Additional buy-to-let rate |
£0-145,000 | 0% | 4% |
£145,001-£250,000 | 2% | 6% |
£250,001-£325,000 | 5% | 9% |
£325,001-£750,000 | 10% | 14% |
Over £750,000 | 12% | 16% |
Buy-to-let LTT rates in Wales
Property Price | LTT rate | Additional buy-to-let rate |
£0-180,000 | 0% | 4% |
£180,001-£250,000 | 3.5% | 7.5% |
£250,001-£400,000 | 5% | 9% |
£400,001-£750,000 | 7.5% | 11.5% |
£750,000-£1.5m | 10% | 14% |
Over £1.5m | 12% | 16% |
Why do buy-to-let properties cost more in stamp duty?
In response to the housing crisis, the government implemented new stamp duty regulations in 2015. Escalating private rental costs coupled with a shortage of affordable housing left numerous first-time buyers struggling to enter the property market. The government aimed to mitigate this by increasing stamp duty on buy-to-let properties and second homes, intending to diminish the appeal of such investments and thereby increase availability 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 the completion of the house purchase transaction. Typically, this transaction date coincides with the completion date.
While your conveyancing solicitor usually manages the filing and payment process on your behalf, it remains your legal responsibility. Therefore, it's essential to ensure that your solicitor is handling this task. If you're aware that your conveyancing solicitor won't handle the stamp duty payment, you must submit an SDLT return to HMRC and settle the tax yourself within the 14-day timeframe.
Are there any buy-to-let stamp duty exemptions?
Properties valued below £40,000, caravans, mobile homes, and houseboats are not subject to the additional stamp duty rate. An exemption also applies if the buy-to-let property constitutes your first and sole property ownership, in which case standard rates apply.
Further exemptions include multiple dwellings relief, aimed at reducing tax liabilities when purchasing several properties simultaneously. First-time buyer relief is also available, along with exemptions for charities, which are entirely exempt from SDLT.
Can you claim back buy-to-let stamp duty?
You might be eligible for a stamp duty refund if you've previously purchased the property and plan to sell your current residence, resulting in sole property ownership. To qualify for this refund, you must sell your original property within three years from the purchase date. Furthermore, when selling your buy-to-let property, you can offset the initially paid stamp duty against the taxable gain from the sale, potentially reducing your capital gains tax (CGT) liability.
To reclaim stamp duty on your second home, you can apply through HMRC. This process requires details about both properties and the amount you're seeking to claim.
Do you pay buy-to-let stamp duty on a property abroad?
The additional rate isn't applicable to investments made overseas since stamp duty is only payable on UK property. However, for all other purchases, it's vital to verify the tax obligations in the respective country of acquisition.
Do you pay buy-to-let stamp duty on an inherited property?
Inherited properties are exempt from stamp duty. However, if you decide to acquire another property without selling the inherited one, thereby owning multiple properties, you may be subject to the additional rate of stamp duty.
How a broker can help with buy-to-let stamp duty
When assessing the viability of investing in a buy-to-let property, it's integral to include the stamp duty costs in your calculations. These expenses can significantly impact your decision on whether property investment aligns with your financial goals.
For this reason, we strongly advise consulting with a mortgage broker before committing to a buy-to-let property to ensure it aligns with your individual circumstances. If you're uncertain about covering mortgage and stamp duty costs, a broker can offer expert advice. They can assist with complex tax considerations, calculate the appropriate SDLT rate, and address queries regarding affordability and mortgage eligibility based on factors such as 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.