Stamp Duty on Buy-to-Let Properties

Nikka Sulton

Stamp Duty on Buy-to-Let Properties

Calculating stamp duty for a buy-to-let property can be complex, as the amount varies based on individual circumstances. This article clarifies the factors affecting stamp duty rates, helping buyers understand their specific situation.

For those concerned about the affordability of stamp duty for a buy-to-let property, guidance and specialized assistance options tailored to their circumstances are also discussed.

Is there a stamp duty on buy-to-let properties?

Stamp duty on buy-to-let properties is common, except for those under £40,000. Rates increase with property value, topping out at 15% for properties worth £1.5 million or more. These rates contrast sharply with the 1% rate for properties over £60,000 before 1997.

The 15% rate highlights the significant property value growth in the UK. For example, a landlord buying a £2 million property, not uncommon in London, faces a £300,000 stamp duty tax. This underscores the substantial tax burden placed on substantial property investments.

Do you pay stamp duty on buy-to-let property?

In England and Northern Ireland, the Additional Stamp Duty Rate comes into play when the property is valued at more than £40,000, and the purchase will lead to your ownership of multiple properties. This surcharge amounts to a minimum of 3% extra in addition to the standard stamp duty fee. It’s applied when acquiring a property that will result in you owning more than one, with a common scenario being an individual who owns their primary residence and intends to invest in a buy-to-let property.

For detailed information on the primary stamp duty tax and stamp duty for second homes, you can refer to our dedicated guide on stamp duty land tax.

It’s worth noting that different stamp duty rates apply in England and Northern Ireland compared to Scotland and Wales.

How much is stamp duty on buy-to-let properties?

Stamp Duty Land Tax (SDLT) is a property tax imposed by HMRC for property purchases in England and Northern Ireland. As of September 2022, standard SDLT rates for residential buy-to-let properties begin at 0% for the first £250,000 of the property value and increase to 12% for amounts exceeding £1.5 million.

However, you’ll be charged at a different rate if any of the following apply. When it comes to Stamp Duty Land Tax (SDLT) for property purchases, several factors can affect the amount you pay:

1. Ownership of Other Properties:

If your new property purchase results in you owning more than one property, you’ll incur a 3% SDLT surcharge. This applies to many buy-to-let purchases since most buyers already own their homes. The SDLT rates, in this case, start at 3% for property values up to £250,000 and increase up to 15% for amounts exceeding £1.5 million. For example, buying a £300,000 property under these rates would result in an SDLT payment of £11,500, which is £9,000 more than a buyer with no other properties.

2. Non-UK Residency:

If you’re not a UK resident for SDLT purposes, meaning you’ve spent more than 182 days outside the UK in the 12 months before your property purchase, you’ll face an additional 2% surcharge.

For overseas investors who also own at least one other property, 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 buy a £300,000 second property under these rates, your SDLT payment would be £17,500.

3. First-Time Buyers:

While it’s uncommon for first-time buyers to invest in buy-to-let properties, if you do, you’re eligible for the same SDLT relief as any other first-time buyer, provided you’re a UK resident and the property is valued at less than £625,000. In this case, SDLT rates are:

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

Understanding how these factors influence SDLT rates can help you calculate the stamp duty payable on your prospective buy-to-let property purchase. Use our calculator below for precise calculations.

Why is there a higher stamp duty tax on buy-to-let properties?

The UK’s thriving buy-to-let market has played a significant role in exacerbating the ongoing housing crisis, making homeownership increasingly unattainable for countless individuals.

In 2015, the government unveiled plans to implement a new 3% additional stamp duty rate targeting those acquiring a second home. The aim was clear: to prevent property investors from outbidding families struggling to enter the housing market. George Osborne, the Chancellor at the time, stated, “People buying a home to let should not be squeezing out families who can’t afford to buy a home.” He further emphasized that the revenue generated from this new rate would be reinvested in constructing more affordable housing.

According to HMRC, there are approximately 2.5 million buy-to-let landlords in the UK. If you fall into this category, the additional stamp duty rate doesn’t impact the properties you already own. However, if you’re contemplating the purchase of a buy-to-let property as a second home, the Additional Stamp Duty Rate becomes a crucial factor that can influence what you can realistically afford.

How much stamp duty will I pay on a buy-to-let?

The stamp duty amount for a landlord buying a buy-to-let property depends on the property’s value and their individual circumstances. Typically, buy-to-let stamp duty rates are 3% higher than residential rates.

For those facing challenges in covering mortgage payments and stamp duty expenses, an offset buy-to-let mortgage may be an option to consider. This type of mortgage can provide some financial relief by allowing borrowers to offset their savings against their mortgage balance, potentially reducing interest costs.

Buy-to-Let stamp duty rates in England and Northern Ireland:

PURCHASE PRICE OF PROPERTY	STAMP DUTY RATE	STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
Up to £250,000	0%	3%
£250,001 to £925,000	5%	8%
£925,001 to £1.5 million	10%	13%
Over £1.5 million	12%	15%

Buy-to-Let LBTT rates in Scotland:

PURCHASE PRICE OF PROPERTY	STAMP DUTY RATE	STAMP DUTY RATE FOR ADDITIONAL PROPERTIES
Up to £145,000	0%	4%
£145,001 to £250,000	2%	6%
£250,001 to £325,000	5%	9%
£325,000 to £750,000	10%	14%
Over £750,000	12%	16%

Buy-to-Let stamp duty rates in Wales:

Purchase price of property	Stamp duty rate	Stamp duty rate for additional properties
Up to £180,000	0%	4%
£180,001 up to £250,000	3.5%	7.5%
£250,001 to £400,000	5%	9%
£400,001 to £750,000	7.5%	11.5%
£750,001 to £1.5m	10%	14%
Over £1.5m	12%	16%

FAQS:

What if I’m a first-time buyer?

If you’re a first-time buyer and don’t currently own any property, you won’t be subject to the additional stamp duty rate when investing in a buy-to-let property. However, it’s important to note that first-time buyer stamp duty relief can only be used for a property you intend to live in.

What if the investment property I’m purchasing is abroad?

The additional stamp duty rate is not applicable to investments made abroad. Stamp duty is specifically payable on properties located in the UK, so properties purchased outside the UK are not subject to this tax.

What if I inherit a property I want to rent out?

Inherited properties are not subject to stamp duty. However, if you inherit a property and subsequently purchase another property, you may be liable for the additional stamp duty rate if it leads to you owning more than one property.

What if I buy a home with an annexe?

If you buy a property with an annexe or granny flat as your main residence, and both the main residence and the annexe are acquired in the same transaction, are within the grounds of the main residence, and the annexe’s value is not more than a third of the overall purchase price, you won’t have to pay the additional stamp duty rate.

However, if the entire property is not going to be your main residence, and you already own another property, you will be subject to the additional stamp duty rate.

Does buy-to-let stamp duty apply to a property you inherit?

When it comes to buy-to-let stamp duty and inherited properties, there are specific considerations to keep in mind. Initially, inheriting a property does not trigger buy-to-let stamp duty. However, a situation may arise where you inherit a property and then decide to purchase another home before selling the inherited one. This scenario is similar to situations where individuals experience delays between buying a new home and selling their previous one. In such cases, you might find yourself subject to a buy-to-let stamp duty surcharge when acquiring the new property.

However, there’s an important exception to this rule. If you inherit less than a 50% share in a property and subsequently purchase another property within 36 months, it won’t be considered an additional property. Consequently, the buy-to-let stamp duty does not apply in this circumstance. This exception provides some relief for those who inherit a partial share in a property and then decide to acquire another property within a reasonable time frame.