Buy To Let Stamp Duty Guide For Landlords

Time's running out for property investors wanting to buy homes to rent out before the stamp duty holiday ends. The big discounts have already gone as the tax break winds down and stamp duty rates return to normal from October 1. Saying that, there's still a chance for landlords to save money on buy-to-let stamp duty or Stamp Duty Land Tax as it's called officially.

Chancellor Rishi Sunak slashing stamp duty rates across the board has seen house prices surge by around double digits year on year, but the market appears to be cooling as the end of the holiday is in sight. Mortgage lender The Halifax says prices fell by 0.5% in June, the first drop since January. The bank, which is part of the Lloyds Banking Group stable, puts the price of an average home at £260,358.

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What are buy to let stamp duty rates when purchasing a property?

The Government temporarily lowered stamp duty rates as part of a raft of economic responses to the COVID-19 pandemic. The stamp duty holiday was due to end on June 30 and applies to residential property purchases across England. Wales and Scotland set their stamp duty rates. In England, the Chancellor decided to phase in the return to normal by offering a further discount between July 1 and September 30.

As a result, rates will go back to normal from October 1. Throughout the holiday, buy to let landlords have paid a 3% surcharge levied on properties the buyer does not live in as their main home. So, while home buyers pay no stamp duty on homes worth up to £250,000, the minimum rate for landlords is 3%. The stamp duty rate rises as the value of the property increases.

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Stamp duty rates in England: From October 1, 2021

Property or lease premium or transfer value SDLT rate

‍Up to £125,0003%

The next ¬£125,000 (the portion from £125,001 to £250,000) 5%

The next ¬£675,000 (the portion from £250,001 to ¬£925,000) 8%

The next ¬£575,000 (the portion from £925,001 to £1.5 million) 13%

The remaining amount (the portion above £1.5 million) 15%

Source: HMRC

The rates apply to the buying price of the property, the lease premium, or, if gifted, the market valuation

Working out how much buy to let stamp duty to pay

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If you purchase a buy to let property valued at £280,000 in England between July 1 and September 30, work out the stamp duty like this:

• 3% on the first £250,000 = £7,500
• 8% on the remaining £30,000 = £2,400
• Total stamp duty = £9,900

The calculation for buying the same property after October 1 is:

• 3% on the first £125,000 = £3,750
• 5% on the next £125,000 = £6,250
• 8% on the remaining £30,000 = £2,400
• Total stamp duty = £12,400

The total saving during the remaining stamp duty holiday is £2,500.

When is stamp duty paid?

Landlords pay the higher stamp duty rate if they own or part-own a residential property on the day the new purchase completes. Ownership includes owning your own home, a home for a child aged under 18 or property you hold an interest in as a trust beneficiary. Buyers must file an SDLT return with HMRC and pay any tax due within 14 days of completing the purchase. The conveyancer handling the transaction should file the return and pay any SDLT for you.

Special stamp duty rules

• Higher rates do not apply to transfers between spouses as long as no one else is involved in the deal
• Different stamp duty rules apply to non-residents
• If you are buying six or more homes, multiple dwellings relief may apply

Find out more about stamp duty for landlords

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• HMRC higher rates of stamp duty guidance
• Land Transaction Tax in Wales
• Land and Buildings Transaction Tax in Scotland

Other ways to save on tax

Stamp Duty Land Tax (SDLT) is not the only tax that you need to think about when managing buy-to-let properties. There are several others you need to consider, as well as ways to make some considerable savings. Here are just a couple of examples.

Setting up a Limited Company

Setting up a limited company can help reduce some of the tax you pay out for your properties. Instead of saving on stamp duty, you may be able to save in other ways and through other means. If you plan to purchase property through a limited company that you have set up, there are certain things you need to consider. Firstly, you will be liable for corporation tax which is due to rise to 25% by 2023.

However, you can make some savings if you are investing in property via a limited company. Landlords typically will find they are pushed into a higher tax band due to the earnings claimed from their properties. Using a limited company, you can claim back the tax paid on your property mortgages before paying your corporation tax. This can be an attractive alternative for landlords that are managing larger portfolios or their main income that is in the top bracket tax band.

Saving on Inherited Properties

You can also save on inherited properties by applying for Business Property Relief (BPR). If you are planning on handing down your property to your children or other relatives, BPR will allow a special tax relief when purchasing through a limited company.

Stamp Duty Guide For Landlords FAQ

I don't own a house, do I pay higher rate stamp duty as a first time buy-to-let investor?

You won't pay stamp duty at the higher rate as a first-time landlord, but you will not benefit from the reduced rate offered to first-time buyers either. When you come to buy your first home to live in, you will miss out again as you won't be a first-time buyer then because of your investment.

Can landlords offset stamp duty against property business tax?

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You can't set off stamp duty against any tax due on rental profits as it is not a revenue expense.However, always keep a note of your buying costs, including stamp duty, as they are allowed as incidental purchase costs that reduce capital gains tax when you come to dispose of the property.

How is stamp duty paid?

Generally, your conveyancer will ask you to deposit the stamp duty amount before completion and automatically pass the money to HMRC within the deadline.

When is stamp duty paid on an inter-spouse transfer?

A property equity transfer between spouses is free of stamp duty, providing the equity is gifted, and the spouse who receives the gift is not taking on any mortgage debt against the property.If a spouse pays stamp duty on an inter-spouse transfer, work out how much at the higher rate.

How do I pay stamp duty if I live in England and buy a property in Wales?

Stamp duty is charged according to the property's location, not where the landlord lives. In this case, the prevailing Land Transaction Tax rates in Wales apply.

We hope this guide has been helpful! Find out more about how Oasis Living can find you the perfect tenants and improve your property management experience. Head to our website now or contact one of our property experts. See our guide on renting for tenants here!