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If you’re thinking of buying a rental property, there’s a range of costs you’ll need to budget for including stamp duty.
But did you know there are different stamp duty rules for buyers of second homes?
Read on to find out how stamp duty works for landlords, the current tax rates, and how to calculate your total stamp duty bill.
Stamp duty land tax (SDLT) has been in place for hundreds of years and must be paid by all buyers of property or land over a certain price.
When you buy a property, you’ll need to pay a portion of the price to HMRC as stamp duty. The amount you have to pay depends on the price of the property. The higher the price of the property, the more you’ll need to pay in stamp duty.
You’ll need to pay stamp duty whether you’re a first-time buyer, moving between homes, or buying a second home.
The cost of stamp duty can be considerable, so it’s important to factor it into your budget before you buy a property. In most cases, your estate agent or solicitor will manage the process for you and submit your stamp duty return to HMRC.
New rules for people buying second homes – which includes buy-to-let properties – were introduced in April 2016. On top of their existing stamp duty bill, buyers of second homes are required to pay an extra three per cent.
The higher costs for people who already own properties were designed to make it easier for first-time buyers to get on the property ladder. The extra stamp duty for landlords was announced not long after controversial Section 24 tax changes, which reduced profits for many buy-to-let investors.
When you buy a rental property, you’ll need to pay the normal stamp duty rate plus an extra three per cent. Here’s an overview of the current stamp duty rates:
Normal stamp duty rate
Second home stamp duty rate
Up to £250,000
£250,001 to £925,000
£925,001 to £1.5 million
Above £1.5 million
Stamp duty is paid in portions. This means that you’ll pay the rate of stamp duty that applies for each portion of the property price. For example, a buyer of a property worth £400,000 would pay the stamp duty rate that applies up to £250,000 and then the stamp duty rate that applies on the remaining £150,000.
If you’re planning to expand your portfolio or buy your first rental property, stamp duty could be a significant extra cost. Buyers of the most expensive second homes are required to pay 15 per cent of the property price above £1.5 million.
However with the average UK house price sitting at £257,808 in September 2023, according to Nationwide, let’s look at a more common example.
If you’re buying a rental property for £257,808, you’ll pay:
It’s important to calculate your estimated stamp duty bill before you buy a property to avoid being hit with any unexpected costs.
You can use the stamp duty calculator on the government website to work out how much you're due to pay.
There are several questions you’ll need to answer, such as whether the property is a second home, the estimated completion date, and whether it’s freehold or leasehold.
You’ll then get a total of how much stamp duty you’ll need to pay, plus a detailed calculation of how much tax is due for each band.
Buyers of second homes who are based abroad have to pay an extra surcharge on top of the three per cent additional rate.
The stamp duty surcharge for overseas buyers is two per cent. As a result, these buyers will pay five per cent more than a standard UK buyer.
In Scotland, Land and Buildings Transaction Tax (LBTT) replaced stamp duty in 2015.
LBTT has bands similar to stamp duty. For example, there’s a two per cent charge on the price of a property between £145,001 and £250,000, rising to five per cent for the cost of a home between £250,001 to £325,000.
Buyers of second homes in Scotland have to pay an Additional Dwelling Supplement (ADS) on top of their LBTT. ADS is charged at six per cent of the total purchase price above £40,000.
So a landlord buying a rental property in Scotland for £275,000 would have to pay the following:
In Wales, Land Transaction Tax (LTT) replaced stamp duty in 2018.
The rates for LTT are similar to stamp duty, going up to 12 per cent for the portion of a property’s price over £1.5 million.
However, buyers of second homes in Wales also have to pay more tax at the following rates:
Second home LTT
Up to £180,000
£180,001 to £250,000
£250,001 to £400,000
£400,001 to £750,000
£750,001 to £1.5 million
Above £1.5 million
As an example, if a landlord buys a rental property in Wales for £375,000 they’ll pay:
In recent years, stamp duty rates have changed on several occasions. The current stamp duty rates were set in October 2022 as part of the now infamous mini-Budget.
Before that, there was a stamp duty holiday between July 2020 and June 2021 in response to the Covid-19 pandemic. The stamp duty holiday saw the tax threshold increased to £500,000 in an attempt to encourage activity in the housing market.
At the moment, there are no plans to change stamp duty rates. However, landlords should remain prepared for stamp duty changes as part of financial updates like Budgets and Autumn Statements.
Working out second home stamp duty costs can be complicated and costly, so make sure you speak to an estate agent or buy-to-let specialist before making any decisions.
Below we’ve answered some frequently asked questions on paying stamp duty when buying a second property.
If you decide that you want to buy an investment property as your first step on the housing ladder, it’s likely you won’t have to pay higher stamp duty rates.
However, it’s important to note that you won’t benefit from stamp duty relief for first-time buyers as the property won’t be your main residence.
If you already own a property that hasn’t sold before you buy a new one, you’ll have to pay the three per cent stamp duty surcharge.
If your original property is sold within 36 months, you can claim a full refund of the extra stamp duty from HMRC.
Married couples are considered as one entity by HMRC. If a married couple or civil partners buy a property and subsequently own two or more properties, they’ll need to pay higher stamp duty rates (even if one property is in each person’s name).
On the other hand, if you’re not married but decide to buy a second property with your partner, you could avoid paying extra stamp duty if the existing property is owned in one person’s name and the new investment property is named solely in the other’s name.
Conor Shilling is a Copywriter at Simply Business with over two years’ experience in the insurance industry. A trained journalist, Conor has worked as a professional writer for 10 years. His previous experience includes writing for several leading online property trade publications. Conor specialises in the buy-to-let market, landlords, and small business finance.
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