October 27, 2023 12:08 pm

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Nikka Sulton

When purchasing a buy-to-let property as a second home in the UK, a stamp duty surcharge applies. In this article, we explore exceptions, address common questions, and offer a second home stamp duty calculator to help you understand your obligations clearly.

Stamp duty on buy-to-let is a relatively recent property tax that applies to second homes. It involves higher rates in addition to the standard stamp duty land tax (SDLT), potentially increasing the cost of your holiday home or investment property. While buy-to-let can still be a profitable venture, it’s essential to carefully calculate the costs involved. When considering a buy-to-let property, you should factor in the additional stamp duty, which begins at 3% on top of the standard SDLT and increases in tiers. To help you get started with your buy-to-let research, here’s an overview of how this tax charge operates.


What is buy-to-let stamp duty?

Stamp duty is applicable to all property purchases, with the exception of first-time buyers acquiring homes priced under £300,000. For other property purchases, stamp duty is levied in different bands, as illustrated in the table below.

When you’re buying a property for the purpose of letting it out, in most cases, it’s considered a ‘second property.’ A second property is defined as any property you own in addition to your primary residence. While it’s technically feasible to purchase a buy-to-let property without owning a home, in reality, most lenders are hesitant to provide buy-to-let mortgages to non-homeowners.

Acquiring a second property, regardless of the reason, incurs an additional rate of stamp duty, essentially a surcharge that’s paid on top of the standard stamp duty rates.

Similar to regular stamp duty, the stamp duty for second homes is calculated using a tiered system. You’ll pay an extra 3% on the first £125,000 and an additional 5% for any amount falling between £125,001 and £250,000, and so forth. Here are the current rates:

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%

When purchasing a second property in Scotland and Wales, you will encounter higher rates of stamp duty. It’s worth noting that Welsh stamp duty (LTT) and Scottish stamp duty (LBTT) have distinct rates for additional property purchases.


Can I avoid stamp duty on a buy-to-let property?

Certainly, if the property’s value exceeds £40,000 and your purchase leads to ownership of more than one property, you will incur the Additional Stamp Duty Rate in England and Northern Ireland. This entails a minimum 3% additional charge on top of the standard stamp duty. This surcharge applies when acquiring a property that would result in multiple property ownership, a common scenario being a homeowner seeking to invest in a buy-to-let property.

For comprehensive information on the primary stamp duty tax, you can refer to our dedicated guides on stamp duty land tax and stamp duty for second homes. It’s essential to note that the rates differ between England and Northern Ireland, Scotland, and Wales.


How much additional stamp duty could I end up paying?

While 3% might not seem like a substantial surcharge, it can have a notable impact, especially for properties priced above £125,000. As an example, if you purchase a second property for £230,000, you’ll pay 3% on the first £125,000 and 5% on the remaining amount over £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

If your property exceeds £250,000 in value, you’ll step into an even higher stamp duty band (8%), which can result in a substantial surcharge.

The silver lining is that buy-to-let stamp duty can be offset against capital gains, preventing double taxation on this amount. However, it’s worth noting that tax relief on buy-to-let mortgage payments has been phased out.

In summary, the new SDLT system represents a significant additional expense for prospective landlords to factor in. It’s advisable to consult a financial adviser to determine if this type of investment aligns with your financial goals. For more information, refer to our buy-to-let guide.


Why do buy-to-let properties cost more in stamp duty?

In 2015, the government implemented new stamp duty regulations to address the housing crisis. The aim was to alleviate the challenges faced by first-time buyers who struggled to enter the property market due to rising private rent costs and a shortage of affordable homes. The government sought to achieve this by increasing the stamp duty on buy-to-let properties and second homes, with the idea of making these investments less appealing and increasing housing availability for first-time buyers. However, in practice, it could result in higher rental costs, making it even more challenging for new buyers to save for a deposit.


Buy-to-let stamp duty exemptions

If you’re married or in a civil partnership, and one partner already owns a property, the additional stamp duty applies, irrespective of the number of properties you personally own.

Similarly, if the purchase is made by a company rather than an individual, the additional stamp duty applies, regardless of the company’s property holdings.


You’re not a UK resident

If you’re not a UK resident for SDLT purposes, which means you’ve spent more than 182 days outside the UK in the 12 months before buying a property, you’ll incur an additional 2% surcharge. For overseas investors who already own at least one other property, the SDLT rates are as follows:

  • 5% on the first £250,000 of the property value
  • 10% on the next £675,000 of the property value (i.e., £250,001-£950,000)
  • 15% on the next £575,000 of the property value (i.e., £950,001-£1.5 million)
  • 17% on any value above £1.5 million=

For instance, if you were to purchase a second property worth £300,000 at these rates, the stamp duty payable would be £17,500.


You’re a first-time buyer

It’s uncommon for first-time buyers to invest in a buy-to-let property, but if you do, you’ll enjoy the same SDLT relief as any other first-time buyer. As long as you’re a UK resident and the property’s value is under £625,000, the SDLT rates are as follows:

  • 0% on the first £425,000
  • 5% on the next £200,000 (i.e., £425,001-£625,000)



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