We provide advice on stamp duty to investors and landlords to ensure that you are not paying too much when purchasing a buy to let property.
Stamp Duty, also known by its official name Stamp Duty Land Tax (SDLT), is a tax levied against property buyers in England and Northern Ireland upon the purchase of a residential property or piece of land that costs more than £500,000. This limit is in place until 31 March 2021, when SDLT will revert to its pre-Covid threshold of £125,000, or £300,000 for a first-time buyer. This upper threshold was introduced by the Chancellor of the Exchequer on 8 July 2020 to help stimulate the housing market.
SDLT applies to both leasehold and freehold properties and is charged regardless of whether the property you are purchasing is paid for with cash or a mortgage.
We can also advise on the application of Land and Buildings Transaction Tax (LBTT), the equivalent of SDLT in Scotland.
The amount of SDLT you owe is dependent on the price of the property you are purchasing, as there are several rate bands. The tax is calculated on the portion of the property acquisition, price falling within each rate band.
If your property costs less than £500,000 and you complete the purchase before 31 March 2021, you will pay no SDLT on the property, assuming that it is your main property. If the price is above £500,000 you will pay Stamp Duty on the portion above £500,000 based on the following revised rate bands:
| Minimum property purchase price | Maximum property purchase price | Stamp Duty Land Tax rate – applicable to the portion of the property price falling within each band) |
|---|---|---|
| £0 | £500,000 | 0% |
| £500,001 | £925,000 | 5% |
| £925,001 | £1,500,000 | 10% |
| Over £1,500,000 | - | 12% |
There is an additional 3% in SDLT levied on the purchase of second homes, as well as buy-to-let properties, on top of each of the revised rates in the band in the table above. This additional 3% applies to properties that have a purchase price over £40,000, but it doesn’t apply to caravans, mobile homes or houseboats.
Ordinarily, the solicitor that you have engaged to help purchase your property will deal with the Stamp Duty return, and make any payment due for you, and you will subsequently reimburse them. It is possible to pay this buildings transaction tax yourself, but regardless of which way you choose to pay it is down to you as the purchasing party to ensure it is submitted on time.
If the price of your new home falls into the 0% rate band (i.e. under £500,000 before 31 March 2021), you must still submit a return, even though no Stamp Duty is due to be paid.
There are a couple of scenarios in which SDLT is either not payable, or can be reduced. For example, if you transfer the deeds of your property to someone else, either as a gift or in your will, they won’t have to pay SDLT on the market value of the property, although if it is transferred as part of your will, there may be Inheritance Tax obligations. For more on the interaction with Inheritance Tax, book a meeting with our expert advisors.
If the price of your property is slightly over a rate band into the higher rate, it might be worth negotiating with the seller or estate agent to see if they would accept a slightly lower price.
Stamp Duty is still payable if you exchange properties with another individual. Each of you will have to pay based on the property that you receive, and this is calculated on its market value.
There are several different types of relief available for homebuyers when purchasing a house. For first time buyers getting on the property ladder, no SDLT is due on the first £500,000 of the property, and this also applies if you are the first-time buyer of shared ownership property.
It is also possible to claim relief when you purchase multiple dwellings in one transaction, or in several linked transactions. Our expert advisors have helped many clients make significant savings utilising multiple dwellings relief (MDR), or to reclaim overpaid SDLT, and will be happy to assist you in your claim.
In recent years there has been an increase in HM Revenue & Customs (HMRC) inquiries into the purchase of residential property by Buy to Let investors, partnerships and companies, as they seek to establish whether the uppermost flat rate of SDLT, 15% applies to the purchases. We can help advise you if you are under enquiry from HMRC or wish to establish your position on potential duty owed.
Most deals for the purchase of land are structured in a way that creates SDLT charges that might not be immediately obvious to the purchaser. We can help to ensure that there are no unexpected SDLT liabilities for you or your business.
This is a highly specialised area of tax, and it is always best to speak to a real expert before investing in residential property. We can help recover overpaid stamp duty, mitigate any potential liability, assist in your correspondence with HMRC, and challenge any previous payments you may have made.
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