All the answers you need to help maximise buy-to-let profits
When you’re investing in property, you’ll need to consider stamp duty, though your liability on off-plan property investment only becomes payable when you complete – which could be a couple of years away. In some cases, the developer may wrap the price of your off-plan investment.
As an investor, some of the stamp duty rules are a little different to those when you buy your own home. Here are eight questions to simplify the conundrum of stamp duty on an investment property in the UK.
1. What is stamp duty?
To give it its proper name ‘stamp duty land tax’, is a tax that is levied on the purchase price of a property in England and Wales (there are different rules in Scotland). You’ll need to pay it if you buy a:
- Freehold property
- Leasehold property
- Shared ownership property
- Land transferred for payment
2. How much is stamp duty on an investment property?
If you buy an investment property for less than £40,000 (a beach hut in Jaywick, perhaps?), you won’t pay stamp duty. Above this, second and subsequent residential properties incur stamp duty at a scaled rate, based upon the price paid for the property. You will also pay a surcharge of 3%.
Rates for residential investment properties are:
| Property Price | Stamp Duty + Surcharge | Total |
| Up to £125,000 | 0% + 3% | 3% |
| £125,000 to £250,000 | 2% + 3% | 5% |
| £250,000 to £925,000 | 5% + 3% | 8% |
| £925,000 to £1,5000,000 | 10% + 3% | 13% |
| Above £1,500,000 | 12% + 3% | 15% |
Therefore, if you invested in a property for which you paid £250,000, you would pay:
(£125,000 x 3%) + (£125,000 x 5%) = (£3,750) + (£7,500) = £11,250
3. When must stamp duty be paid?
It must be paid no later than 30 days after you have completed the purchase of the investment property. This is not the same as the date at which you pay a deposit on an off-plan purchase. It's is payable on a dwelling, and at the time that you agree to buy off-plan, the property is not dwelling – it can’t be lived in.
However, when the property is finished and you complete the deal, then the 30-second clock starts ticking. Though we don’t recommend it as an investment strategy, you can avoid paying stamp duty on an off-plan property by selling before completion. To do this, you must ensure that the terms of the sale agreement allow you to sell before completion.
4. How do you pay it?
Though you can do it yourself, usually your solicitor will file its return with HMRC for you. They will pay the it on your behalf on the day of completion, from funds you have lodged with them for this event.
5. If you invest through a limited company, can you avoid it?
Unfortunately, no. While there are many reasons to invest in property as a limited company, avoidance of stamp duty is not one of them. You’ll pay stamp and the surcharge from the first property you purchased in the limited company name.
6. You’re an overseas investor and own a home abroad. Will you have to pay the 3% surcharge?
Yes.
7. Are properties purchased for conversion subject to stamp duty?
This is a little trickier. If you buy a commercial building to convert into homes, then the answer is no. If you buy a residential building to convert it into commercial, then the answer is yes. It’s the use at the time of purchase that is the important piece of this jigsaw.
One caveat here: if you purchase a commercial property on which the conversion to residential has already begun, then you will probably have to pay it, including the 3% surcharge.
8. What is this about a 15% flat rate?
You may have been told by your accountant that, if you invest in property as a company, you will be liable to pay a flat rate of 15% on the entire residential property value if it costs more than £500,000.
This is not true. If you invest (as a limited company) in a residential property to rent it out, you will not be liable to a flat rate of stamp duty at 15%. You will, however, pay it as shown earlier in this article.
This should be all the information you need when considering stamp duty on residential investment property. However, there is one final caveat: this isn’t personal advice, and tax rules and regulations are subject to change. It’s always best to seek personalised advice from a tax specialist.
Read our article “If your accountant can’t answer this about property investment, don’t hire them!” for advice on how to choose an accountant who will help you to maximise your property investment profits.
Contact Gladfish today on +44 207 923 6100 and get the ball rolling. Book a strategy consultation. Together, we’ll assess your current financial position and investigate how your property investment should best be structured, and how stamp duty may (or may not) impact your returns.
Live with passion and fun,
Brett Alegre-Wood
