Last updated: 29th July 2019
If you’re buying a property – particularly a buy-to-let property – stamp duty should be on your radar, because it’ll be something you’ll need to budget for. There’s been a few recent changes to stamp duty, and it’s not the same across all of the UK, so we thought we’d give you this handy, up-to-date guide to stamp duty for property investors.
First things first…
Otherwise known as Stamp Duty Land Tax (SDLT), stamp duty is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay.
And how much you pay varies on the price and type of property.
If you’re buying a home in England or Northern Ireland (we’ll come onto Scotland and Wales shortly) worth more than £125,000, you’re going to have to pay stamp duty on your purchase – and it’s worse for investors and people buying second homes, for whom only properties under £40,000 escape the tax.
Money Advice Service have a really useful Stamp Duty calculator here – remember to choose the option for “I am buying an additional or buy-to-let property”, as investors have to pay an extra 3% on top of the standard rates.
That’s right – if you’re buying a second home, you’ll need to cough up an extra 3% on top of the standard stamp duty rates.
There have been reforms to stamp duty over the last few years, but under the current system – in England and Northern Ireland – you’ll only pay the rate for the proportion of the property which falls within that band. This is a bit complicated so here’s an example:
Let’s say you’re an owner-occupier buying a property that costs £500,000.
You don’t pay anything under £125,000.
You pay 2% between £125,001 and £250,000 – so that’s £2,500.
You pay 5% on the value between £250,001 and £500,000 – so that’s £12,500.
This means you pay £2,500 + £12,500. Which is £15,000.
However, as an investor buying a £500,000 property, every band is 3% higher. So:
You pay 3% on everything under £125,000 – so that’s £3,750
You pay 5% between £125,001 and £250,000 – so that’s £6,250
You pay 8% on the value between £250,001 and £500,000 – so that’s £20,000
That’s £3,750 + £6,250 + £20,000 – a total of £30,000. Ouch!
A first-time buyer is someone who’s never owned a property – whether that’s bought or inherited. This applies globally too – so if you’ve inherited a family home in France, you won’t count as a first-time buyer.
We’re often asked if first time investors can escape the stamp duty charge.
If you don’t own your own home but want to invest in property, you’ll be treated as a first time buyer and the normal rules apply – there’s no additional 3% surcharge. But if you wanted to buy a second investment property, or a home for you to personally live in, you will have to fork out the stamp duty and additional 3%.
Scotland and Wales may use different names for this tax – in Scotland it’s the Land and Buildings Transaction Tax, in Wales’ it’s the Welsh Land Transaction Tax – but the principles are essentially the same. The main difference is the thresholds they use, and you can check the calculator for the Scottish rates here and the Welsh rates here.
What’s important to know is – wherever in the UK you’re buying, as of early 2019 there’s just 14 days from the completion of the contract to pay stamp duty. Take longer and you could face a fine, and even interest on top, so be careful! Nobody wants to pay more than they actually need to.
If you’d like further information or have any other tax related questions, get in touch with our Property Hub Tax team who are constantly on hand and always happy to help.