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Stamp duty is one of the biggest taxes you will have to deal with when investing in buy-to-let property, and every investor will have to pay it at some point in their property investment journey.
It can be tricky understanding how much stamp duty you need to pay when investing in buy-to-let, as different circumstances may mean you pay changing amounts when buying more buy-to-let properties.
This blog will break down what stamp duty is, how rates can change, what may affect the rate you pay and different ways you can lower the stamp duty you pay.
Let’s get into it.
Stamp Duty Land Tax (SDLT for short) is a property tax imposed by HMRC on the sale of any residential property or land in the UK.
It is charged as a portion of the property’s sale price, which goes up the higher the property price is.
Scotland and Wales have different terms and rates for stamp duty. Scotland refers to it as Land and Buildings Transaction Tax (LBTT), while Wales calls it Land Transaction Tax (LTT).
There are various surcharges which you might have to pay, depending on your circumstances.
If you already own your own home, any property you buy will be classed as an additional property, and you will need to pay an extra 3% stamp duty on top of what you would normally pay.
You can get a stamp duty refund on the surcharge if you sell your original home within 36 months of buying the new property, as you make the new property your primary residence.
In Scotland, this surcharge is referred to as Additional Dwelling Supplement or ADS for short.
Buy-to-let properties are considered additional properties when it comes to stamp duty, so you will have to pay the 3% surcharge on top of the base rate of SDLT. Given you will not be selling your home, you cannot claim back the surcharge when buying buy-to-let.
Yes, you pay stamp duty on any buy-to-let property you buy.
You’ll have to pay the 3% surcharge as well, so be prepared to pay higher than the standard rates.
However, unlike other forms of buy-to-let tax like income tax or capital gains tax, the amount you pay does not change based on your annual income. The only thing that will affect the rate of stamp duty is the property’s value.
The amount you pay will go up on increasing portions of the property’s value, which we will explain when we talk about stamp duty rates later.
You will also have to pay another surcharge if you are investing from overseas, with the rate for England and Northern Ireland being 2%.
As we’ve mentioned previously, stamp duty rates change depending on the value of the property.
Here is a breakdown of the current buy-to-let stamp duty rates, including the surcharge for additional properties and international investors.
Rates differ in England, Scotland, Wales and Northern Ireland, so we’ve included tables for each country so you have up-to-date rates for the entire UK.
If you want an easier way of working out how much stamp duty you need to pay, try our free stamp duty calculator to give you an accurate indicator of how much you will be paying.
These are the current SDLT rates for England and Northern Ireland as of 23 September 2023.
For example, if you bought an investment property for £295,000 you would pay the following amount of stamp duty:
3% on the first £250,000 = £7,500
8% on the remaining £45,000 = £3,600
For a total amount of £11,100 on top of the £295,000 you are paying for the property.
These are the current LBTT rates for Scotland as of 16th December 2022.
For example, if you were to buy a property in Scotland for £245,000, the LBTT you would pay would look like this:
6% of the first £145,000 = £8,700
8% of the next £100,000 = £8,000
This would mean you pay a total tax of £16,700 on the property you are buying.
These are the current LTT rates for Wales since 10th October 2022.
There are different rates for those who are not homeowners and those who already own property, so we’ve included two separate tables to help avoid confusion for you.
First up are the rates for those buying properties without already owning any:
And now the higher rates for those who already own property:
If you are a first-time buyer looking to buy a buy to let property, then you may find you have reduced rates depending on where you spend your money.
In England and Northern Ireland, you can claim tax relief on stamp duty for any property worth up to £425,000, while only paying 5% on the portion between £425,000 and £625,000. This means you won’t pay stamp duty on a property worth less than £425,000, provided it’s your first ever property purchase.
There are no stamp duty exemptions for first-time buyers for the portion of any property over £625,000.
Scotland also has relief for first-time buyers, increasing the amount you don’t have to pay stamp duty on to £175,000. Wales has no stamp duty exemptions or relief for those buying their first home, unfortunately.
While it’s improbable you’ll be buying a buy-to-let property for your first property, it is worth noting it’d be cheaper this way.
It can be confusing to navigate stamp duty charges and to understand what you need to pay.
Stamp duty is an added cost that every investor needs to understand, so it is important you know what you need to pay and what you don’t.
Here is a handy flow chart to help you know if you need to pay the surcharges or not.
Stamp duty can be an additional charge on top of the purchase price of the property, so it makes sense to try and find ways to avoid paying it if you can.
If you are wondering how to avoid stamp duty on a second home, there are several methods you could try and use to achieve this:
The first way you can start investing in buy-to-let property is to purchase property that is worth less than £40,000, as this is exempt from stamp duty in England and Northern Ireland.
However, the chances of you getting a quality buy-to-let property for that kind of price are low. It is more likely you would be buying land with that kind of budget, allowing you to build a freehold property rather than paying for a leasehold one.
Even if you were to buy a property for under £40,000, the likelihood is that you would need to make extensive renovations to it in order for it to be a viable buy-to-let property.
The kind of budget you would need to build a new home on the land would far outweigh the price of purchasing an already constructed property, so this might not be the best way to avoid second home stamp duty.
One method of buy-to-let investing that you might have overlooked is to rent out holiday homes like caravans or houseboats.
This is a much cheaper way of buying a new home, even if it is not as spacious or capable of high yields as a buy-to-let investment property.
Given the lower budget required, you likely won’t need a buy-to-let mortgage so you could potentially use the mobile home yourself when not renting it out to holiday goers, giving you a versatile second home.
However, you won’t be able to collect as much rental income from a mobile home, nor will you be able to benefit as much from capital growth. This is a much smaller investment, so if you want to make a larger passive income then this is not the option for you.
If you are in a lucky enough position to be investing in buy-to-let as a first-time homeowner, you can benefit from the additional tax relief you gain from this position.
This can save you a considerable amount of money on stamp duty, as rates for first-time buyers are far less than those buying an additional property.
However, buy-to-let mortgages often require borrowers to be homeowners already to prove they know how to run a property and repay a mortgage, so you may find the money you save on stamp duty being spent on higher interest rates instead. That’s if you are even accepted for a mortgage in the first place, as many lenders won’t offer BTL mortgages to first-time buyers.
Stamp duty holidays are sometimes called by the government as a remedy for a weakening housing market. The reduced costs help to boost sales and stabilise the market after times of uncertainty.
The most recent stamp duty holiday was called in 2021 as a response to the COVID-19 pandemic, to try and boost a sluggish housing market. This had the desired effect, as house prices rose to record levels in 2022.
Given the current health of the housing market, a stamp duty holiday is unlikely barring outside factors, so you’ll probably be waiting a while before you can take advantage of this method.
The final method of avoiding stamp duty you could use is to buy a property in someone else’s name, so long as they do not already own property themselves.
You can do this by putting the property solely in their name, as the government will class you as also owning the property if your name is on the deeds.
Instead, sign the contract for the property as a guarantor, so you still have some control.
With this method, you must only give property to someone you trust deeply, as you will essentially be handing over control of the property to this person once their name is on the deeds.
If you’re in a couple, either married or unmarried, you may be wondering what buy-to-let rules for stamp duty on buy-to-let property apply to you depending on how many properties you both own individually.
For instance, some couples wonder whether a buy-to-let surcharge for stamp duty land tax would apply to them if only one person within the couple owns a property already.
Unfortunately for married couples or those in a civil partnership, the buy-to-let surcharge tax price would apply in this circumstance.
This is because married couples or those in a civil partnership are treated as one person when it comes to stamp duty tax.
For those who are still married but not living together, this rule doesn’t apply.
Couples who are unmarried can also avoid these higher rates if the person in the couple who doesn’t already own a property buys property as an individual, as they’ll still be classed as a first-time buyer.
Stamp duty tax must be paid within the first 14 days after buying your property.
Regardless of where your current property is, you’ll need to pay the second home surcharge when buying another property in England or Northern Ireland as you don’t classify as a first-time buyer, even if you are a non-UK resident.
If you own a property in England or Northern Ireland and you’re buying a second property (whether as a holiday home or buy-to-let property), you won’t need to pay stamp duty tax on buy-to-let property as this rule doesn’t apply to international countries, even if you are a UK resident.
Yes, limited companies still need to pay stamp duty on buy-to-let property.
If you inherit a property and wish to rent it out as a buy-to-let home, you won’t need to pay stamp duty tax as you’re not buying the property.
The amount you pay on buy-to-let properties depends on the property price you agree upon, so it is different for every property. Use a buy-to-let stamp duty calculator to help you work out how much you’ll need to pay.
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John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
