Every buy-to-let on the market comes with a hidden cost; and it can potentially add ten of thousands to your final purchase price.

Read on to learn how much more you could be paying in stamp duty on your next investment purchase…

What is stamp duty land tax (SDLT)?

Stamp duty land tax is an additional tax charged on property purchases in the UK.

When you buy a property – whether it’s for investment purposes or as a home to live in – you’ll need to pay the required amount of stamp duty to HMRC within 14 days of the completion of the purchase.

How much stamp duty will I pay on investment property in England and Northern Ireland?

In case you weren’t aware, investment purchases are subject to a 3% stamp duty surcharge. 

In other words, the stamp duty you’ll pay on a buy-to-let will be 3% higher than the stamp duty you’d pay if you were buying a home.

Stamp duty is charged at marginal rates, which can be a bit confusing at first glance. Here’s how it works if you’re based in the UK and buying a property in England or Northern Ireland.

If the purchase price is £40,000 or less, you won’t pay any stamp duty. If the price is more than £40,000, the rates below apply:

• You pay 3% on the first £125,000.
• You then pay 5% on the next portion between £125,001 and £250,000.
• You then pay 8% on the next portion between £250,001 and £925,000.
• You then pay 13% on the next portion between £925,001 and £1.5 million.
• And finally, you pay 15% on any portion above £1.5 million.

Let’s break those numbers down with a few examples.

Example 1

You’re an investor in the UK and you’ve just purchased a lovely 4-bedroom buy-to-let for £725,000. 

How much stamp duty will you pay?

• 3% on the first £125,000 portion, which is £3,750.
• 5% on the next £125,000 portion, which is £6,250.
• 8% on the remaining £475,000, which is £38,000.
• Add those numbers together (£3,750 + £6,250 + £38,000) and your SDLT total is £48,000.

Example 2

Your next property purchase is a two-bedroom buy-to-let for £200,000.

You’ll pay:

• 3% on the first £125,000 portion, which is £3,750.
• 5% on the remaining £75,000, which is also £3,750.
• Your total stamp duty is therefore £3,750 plus £3,750, which is £7,500.

What if I’m an overseas buyer?

Non-resident buyers looking to purchase a residential buy-to-let in England or Northern Ireland will be subject to an additional 2% surcharge.

This is added on top of the regular 3% surcharge for buy-to-let purchases.

As an example, let’s take another look at that £200,000 property as a non-resident purchase.

An overseas buyer would pay:

• 5% on the first £125,000 portion, which is £6,250.
• 7% on the remaining £75,000, which is £5,250.
• £6,250 plus £5,250 equals a stamp duty total of £11,500.

What about commercial property purchases?

Good news; SDLT rates for commercial, mixed-use and other ‘non-residential’ properties are a lot smaller than residential buy-to-let rates:

• For the first £150,000, you’ll pay zero stamp duty.
• For the next portion between £150,001 and £250,000, you’ll pay 2%.
• Any portion over £250,000 will incur 5% stamp duty.

Wasn’t there a stamp duty holiday?

There was; sadly, it’s long gone now.

Introduced in July 2020, the stamp duty holiday increased the upper limit of the first bracket; which meant no stamp duty for home purchases up to £500,000, and dramatically lower stamp duty fees for investors.

Sadly, the holiday was only ever intended as a temporary measure during the Covid crisis, and was sadly discontinued at the end of September 2021.

What about investment purchases in other UK countries?

In Scotland, property purchases are subject to ‘land and buildings transaction tax’ (LBTT) instead of SDLT. 

It’s effectively the same thing as stamp duty, with the same £40,000 tax-free allowance and the same 3% surcharge for investment purchases, but with slightly different rates:

• You pay 3% on the first £145,000.
• You then pay 5% on the portion between £145,001 and £250,000.
• You then pay 8% on the portion between £250,001 and £325,000.
• You then pay 13% on the portion between £325,001 and £750,000.
• Finally, you pay 15% on any portion above £750,000.

LBTT rates for commercial property are also quite similar to SDLT:

• 0% for purchases up to £150,000
• 1% on the portion between £150,001 and £250,000.
• 5% on any portion above £250,000.

As for Wales, stamp duty is replaced with ‘land transaction tax’ (LTT), which is charged at the following rates for investment buys:

• 4% up to £180,000.
• 7.5% on the portion between £180,001 and £250,000.
• 9% on the portion between £250,001 and £400,000.
• 11.5% on the portion between £400,001 and £750,000.
• 14% on the portion between £750,001 and £1,500,000.
• 16% on any portion above £1,500,000.

Are there any exemptions or reliefs I can claim for stamp duty?

If you’ve never owned a home before and you’re buying your first investment, you’ll pay stamp duty at the rates for home property buyers; although you won’t have access to the even lower rates for first-time buyers.

Depending on your circumstances, there may be other ways to reduce your SDLT liability. It’s always best to discuss your options with an accountant or tax specialist.

And as specialist property tax accountants in London, GNS Associates can help you identify your stamp duty liabilities and potentially reduce your property tax bills. Get in touch on 0208 090 2604 or info@gnsassociates.co.uk for a consultation today.