Stamp Duty for Buy to Let

Do you need to pay Stamp Duty on a buy to let property – and how do the Stamp Duty bands work for homes that you buy as a rental investment rather than a residence?

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Stamp Duty for Buy to Let

With changes to Stamp Duty rates, it can be difficult for property investors to understand exactly what they need to budget for.

Stamp Duty works as a percentage of the value of a property and is worked out on a tiered basis dependant on the cost of the BTL property. Understanding your Stamp Duty costs is essential before proceeding with a new property investment. 

As buy to let mortgage experts, business finance broker are on hand to provide up to date and tailored advice to help you make informed decisions about expanding your property portfolio.

How much is Stamp Duty on a BTL Property in 2020?

The value of stamp duty depends on:

  • Whether you are a first-time buyer
  • Whether you own an existing property
  • Whether this is your first investment property purchase

Stamp Duty for First Time Investors

As of July 2020, the Stamp Duty rates have changed to raise the threshold on residential properties to £500,000. However, investors and landlords purchasing a second property pay an additional 3% duty on all purchases up to this value.

This new threshold has risen from the previous limit of £300,000, over which first-time buyers become liable for Stamp Duty.

Investment properties purchased at over £500,000 will incur a second home duty of 8% on the value over and above £500k, in addition to the 5% Stamp Duty payable.

Understanding Stamp Duty for Landlords

Most second properties are purchased to be let out to generate rental income. The Stamp Duty system imposes an additional duty on second homes, which includes properties being purchased as an investment or as a rental property.

The rates as of July 2020 are:

Property Value

Stamp Duty

Second Home Duty

Up to £500k

0%

3%

£500,001-£925,000

5%

8%

£925,001-£1,500,000

10%

13%

£1,500,001 and above

12%

15%

Finding a Reliable Stamp Duty Calculator

To make it easier to understand your Stamp Duty obligations, check out the streamlined and user-friendly online mortgage calculators at Revolution Finance Brokers.

Stamp Duty can be calculated for:

  • First-time investors
  • Purchases of new or secondary residences
  • Investments in additional properties
  • Residential and commercial investment properties
  • Either freehold or leasehold purchases

If you need personal advice about how the Stamp Duty rates will impact your BTL properties, give us a call on 0330 304 3040.

Scottish BTL Stamp Duty

In Scotland, investors pay a similar duty, which is called Land and Buildings Transaction Tax (LBTT). This is a very similar tax to that in England but has different rates.

Stamp Duty in Scotland for First Time Buyers

As with elsewhere in the UK, LBTT carries an additional levy for second homes, which also applies to investment properties. The Additional Dwelling Supplement is fixed at 4% for second homes and is payable in addition to the LBTT.

Properties valued at less than £250,000 are exempt from the duty but still carry the second home duty. 

The below rates are correct as of July 2020:

Property Value

LBTT

Second Home Duty

Up to £250k

0%

4%

£250,001-£325,000

5%

4%

£325,001-£750,000

10%

4%

£750,001 and above

12%

4%

Avoiding Stamp Duty on Buy to Lets

Most of the time, Stamp Duty is an unavoidable cost of investing in an additional property. However, some types of residence are exempt. These include:

  • Caravans
  • Mobile homes
  • Houseboats

If you are a first-time buyer, it is worth considering opting for a first property as below the £500,000 stamp duty threshold (previously £300,000) to avoid paying any Stamp Duty aside from the second home duty. 

Stamp Duty is also exempted from property purchases where no payments are involved - for example, if a property transfers ownership during a divorce settlement or under the instructions of a will. 

Buy to Let Landlord Stamp Duty Relief

There are some circumstances where landlords can claim relief against Stamp Duty costs. The HMRC website includes more details about situations where tax relief is available.

Investment in Multiple Dwelling

If you invest in a property with more than one home, and the investment consists of either a freehold or leasehold, you may be able to claim tax relief.

The HMRC calculation for the tax rate is calculated as:

  • The total amount of the purchase divided by the number of dwelling included
  • Tax is calculated on this divided figure
  • Multiply the value of tax by the number of homes included

Purchase of an Employee Property by an Employer

Some jobs and contracts include the provision of a residential property for the employee. In this case, the employer is technically acting as a landlord. They can claim relief against Stamp Duty provided the following conditions are met:

  • The property is a primary residence by the employee
  • The residency begins no earlier than two years before the purchase
  • The property sits within half a hectare of land
  • The relocation requires a house move and the purchase of the property
  • The property is purchased at a fair market value

Stamp Duty for Social Landlords

In the following circumstances, a registered social housing landlord may claim tax relief:

  • Most of the member of the board of the social landlord are tenants living in the properties
  • The property is being sold by a qualifying seller, for example, the local council

Developer Property Investments and Stamp Duty

Sometimes, a developer purchases a property from a new resident who is, in turn, buying a residence from the developer. In this case, the developer would not be required to pay Stamp Duty on the purchase of their new resident's old home.

The following conditions apply to the resident selling their previous property:

  • They have lived in the property as their main home during the two years leading up to the sale 
  • They are purchasing a new residence from the developer
  • The new property will become their new primary home or only residence

Is Stamp Duty Claimable as an Expense?

Unfortunately, Stamp Duty is not a claimable expense for landlords to offset against their revenue for tax purposes. Certain types of expense are tax-deductible, such as:

  • Property maintenance and repair costs
  • Management costs
  • Utilities
  • Any staffing costs, such as wages for a property manager

There are other ways to apply for tax relief - for example, if you sell your property at a profit, then the Stamp Duty paid can be dedicated from the profit when calculating how much Capital Gains Tax you need to pay.

Advice on BTL Stamp Duty

Our top tips for managing your Stamp Duty liability are:

  • Use a specialist broker who understands the buy to let mortgage market
  • Consult an adviser about which trading structure or mortgage type will be most efficient
  • Consider whether trading as a limited company would be beneficial

Finding Help with Buy To Let Stamp Duty

It is always advisable to work with an advisor when calculating your property investment costs. Stamp Duty is a significant expense, so it is well worth taking the time to listen to professional advice, as there may be ways to limit your costs, or offset them against your tax liabilities.

Multiple factors determine the cost of Stamp Duty, so before proceeding with a property purchase contact Revolution Finance Brokers for personal advice to help you save money and find the most competitive options for you.

Not only can our team provide accurate advice about how much Stamp Duty you can expect to pay, but can also advise on structuring your portfolio and aligning your mortgage products to reduce your outgoings.

Expert Stamp Duty Support

For any queries around Stamp Duty or BTL mortgages, give us a call on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk and our friendly team will be happy to get the ball rolling on your new property investment!

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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