6 Stamp duty questions all property investors need answered

Making stamp duty less taxing when you invest in property

Buy-to-let property investors have had to cope with a 3% stamp duty surcharge on the property purchases since April 2016. It is one of the extra taxes that have been blamed for a slowdown in the buy-to-let market. Now, I’m a firm believer in not making tax the deciding factor in your investment decision, but such costs are among the seven things you must consider when investing in property, which also includes:

In this article, you’ll learn how stamp duty affects property investors in the UK.

1)     What is stamp duty?

Stamp duty – or, to give its proper name, Stamp Duty Land Tax (SDLT) – is a tax levied by the government on people who buy properties (or land) in the UK.

2)     How much stamp duty will you need to pay?

The amount of stamp duty you pay depends upon two factors:

  1. The price of the property you are buying
  2. Whether it will be your main residence or an investment property (or second home)

It is charged on a rising scale. Whether you are buying your home or an investment property, if the total price is less than £40,000, there will be no stamp duty to pay. Otherwise, how much you pay is calculated on the price bandings in the table below.

In addition to the standard stamp duty, you will also need to pay a stamp duty surcharge of 3%. Your effective stamp duty liability could, therefore, be as high as 15% (on the portion of the property price above £1.5 million).

Portion of property price Standard stamp duty rate Stamp duty surcharge on investment properties and second homes Effective stamp duty on investment property from April 2016
£0-£40,000 0% 0% 0%
£0-£125,000 0% 3% 3%
£125,001-£250,000 2% 3% 5%
£250,001-£925,000 5% 3% 8%
£925,001-£1.5m 10% 3% 13%
£1.5m+ 12% 3% 15%

 

For example, if you buy an investment property for £300,000, the amount of stamp duty you will be charged is:

Portion of property price Effective stamp duty rate Stamp duty payable
£0-£125,000 3% £3,750
£125,001-£250,000 5% £6,250
£250,001-£925,000 8% £4,000
Total   £14,000

 

3)     When must your stamp duty bill be paid?

When you buy a property in the UK, you will need to complete an SDLT return and submit it to HMRC. Your payment is due within 30 days of completion.

4)     How do you pay the stamp duty owed?

You can pay the stamp duty yourself, though most investors leave this to their solicitor. Whichever method you choose, you should remember that you are the one responsible for ensuring that the stamp duty is paid on time.

5)     Can you avoid the stamp duty surcharge by using the second property as your main residence?

Some people mistakenly believe they can cheat the system by using their investment property purchase as their main residence. You can’t, and HMRC is very hot on people who use the strategy of buying a second property, moving in as the main residence, and then letting out their original home.

6)     Are any properties exempt from stamp duty?

As well as any property bought for less than £40,000 in total, there are other properties which are exempt from stamp duty charges. These include:

  • Caravans
  • Mobile homes
  • Houseboats

So, if you want to invest in a second property as a holiday home, buy a houseboat!

The exemption also applies when you buy a property as your main residence, but don’t sell your original home immediately. While you must pay the stamp duty liability, provided the original home is sold within a year at the most, you can reclaim the stamp duty.

If you have any more questions about stamp duty or would like to know how some property deals will allow you to wrap up your stamp duty in the purchase price of the property, get in touch with Gladfish today on +44 207 923 6100. You could join the hundreds of investors who we have helped to build successful property portfolios.

Live with passion

Brett Alegre-Wood

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