If you’re purchasing a buy-to-let property for the first time, you will have to deal with several taxes and legal stuff, such as stamp duty.
Stamp duty is one of the biggest aspects of buying a home, especially when buy-to-let properties are concerned.
It stands as one of the biggest costs you will have to take care of before you’re ready to benefit from the buy-to-let rental.
Of course, one of the questions that you may have in mind is if stamp duty can be claimed back, refunded or outright avoided.
The answer to this question can be a little complex, especially since not every property is eligible for a tax refund.
So, let’s look at all aspects of stamp duty, how it pertains to buy-to-let properties and how much of it can be refunded.
Table of Contents
- Introduction To Stamp Duty
- Can I Claim Back Stamp Duty On Buy-To-Let?
- Stamp Duty Rates On A Buy-To-Let Property
- Stamp Duty Exemptions
- Can Stamp Duty Be Avoided On Buy-To-Let Properties?
- Summing Up
Introduction To Stamp Duty
Stamp Duty Land Tax (SDLT) is a property tax that you pay while purchasing land or property. It is a tax that applies to people who are purchasing properties above a certain value in England or North Ireland.
The scheme may change slightly if you live in Scotland or Wales, but the overall concept of SDLT is the same.
Based on the property value and its purpose, the buyer must pay a certain amount of SDLT to gain complete ownership of said land. The buyer type and time of purchase play a role in determining the amount of SDLT owed as well.
For instance, first-time buyers will have to pay a different amount of SDLT than a previous homeowner or a landlord.
A second-time buyer pays an extra 3% over the standard SDLT rates, applicable to properties like rental or holiday homes.
Remember that stamp duty must be paid solely by the land buyer and not the owner. And in certain circumstances, the tax can be refunded as well, provided that the buyer is eligible for it.
Can I Claim Back Stamp Duty On Buy-To-Let?
Unfortunately, SDLT cannot be claimed back as a business expense in your tax returns under normal circumstances.
However, if you meet one of the following circumstances, you may be able to claim it back:
- Selling your main residence within three years of purchasing the buy-to-let
- Sell the buy-to-let property
In the first case, if you sell the main residence within three years of purchasing the buy-to-let, then you can claim the 3% surcharge back.
This is because the buy-to-let becomes your sole property, making it exempt from the surcharge.
With the second circumstance, you can reduce your capital gains tax (CGT) bill by selling the buy-to-let property.
Since you receive money for the sale, it can be used to pay the stamp duty, which ends up reducing your CGT bill.
Stamp Duty Rates On A Buy-To-Let Property
Stamp Duty Land Tax rates on buy-to-let properties can vary based on the buyer type. Let’s look at each buyer type to understand how these rates work.
Disclaimer: When it comes to taxes, this is just general advice and not to be relied upon as fact. When it comes to tax everyone’s position and circumstances are different and the rules are changing all the time. Only by seeking advice of a qualified tax professional can you be certain you are complying with all the relevant tax rules & regulations.
1. As A First-Time Buyer
If your first property is a buy-to-let one, you won’t incur any extra SDLT over the standard rates. The SDLT surcharge is reserved only for those who hold the ownership of multiple homes.
Based on the property value, we can determine how much SDLT you will need to pay as a first-time buyer.
As long as you are a resident of the UK and the property value is less than £625,000, you can claim a discount.
To put it simply, you will pay no SDLT on the first £425,000 and 5% on the next £200,000.
If the property value is above £625,000, the SDLT rates applicable to previous homeowners will apply instead.
2. As A Buyer With At Least One Other Property
UK residents who own at least one other property will pay a 3% surcharge over the standard rates.
Meaning, you will pay the following:
- 3% SDLT for the first £250,000 of the property value
- 8% SDLT for properties valued between £250,001 to £925,000
- 13% SDLT for properties valued between £925,001 to £1.5 million
- 15% for properties valued above £1.5 million.
3. As A Non-UK Resident Buyer
Non-UK residents must pay a further 2% surcharge over the existing SDLT rates. So, if you own at least one other property and are an overseas investor, your SDLT taxes will be:
- 5% SDLT for the first £250,000 of the property value
- 10% SDLT for properties valued between £250,001 to £925,000
- 15% SDLT for properties valued between £925,001 to £1.5 million
- 17% for properties valued above £1.5 million.
Stamp Duty Exemptions
In certain cases, exemptions in the form of non-standard SDLT rates or exclusions will apply to properties.
These SDLT exemptions are as follows:
1. Properties Excluded From SDLT
The properties that are valued below £40,000 are excluded from SDLT, regardless of the purchase price and purpose. These can include caravans, boat houses, motor homes, and similar mobile homes.
You won’t have to pay SDLT at all even if you use one of these as a primary residence.
2. As A First-Time Buyer
First-time buyers have lowered SDLT rates for buy-to-let properties. Such buyers will only be eligible for the exemption if the buy-to-let will be the first and only property they own.
3. Multiple Dwellings Relief
If a buyer purchases several properties in the same transaction, the amount of SDLT they pay will be reduced.
The buyer may also receive an exemption if they purchase several small properties as a part of the transaction.
Can Stamp Duty Be Avoided On Buy-To-Let Properties?
Stamp duty is a mandatory tax and it cannot be avoided legally, except for certain special circumstances. A property valued worth £40,000 is the only one completely excluded from this tax.
One special condition where you can receive refunds on SDLT is through an overpayment claim. If your property cannot be rented out and has been deemed uninhabitable, you may be eligible for a rebate.
There are several scenarios that can contribute to such a condition, which is when you may want to consult a professional solicitor for advice.
Buy-to-let properties require a relatively higher monetary investment compared to regular residential properties, and SDLT is one of the most expensive ones.
This is because of the monetary gain that buy-to-let owners receive after renting the property out to a tenant.
Certain exceptions aside, owners of buy-to-let properties are required by law to pay the Stamp Duty Land Tax.
If these owners have a second home, they will be required to pay a stamp duty surcharge. Suffice it to say, that most buy-to-let owners will not have much of an opportunity to claim back or receive a refund on SDLT.
After purchasing a buy-to-let property, if you fail to pay the stamp duty tax, you may have to pay a penalty.
For late payment, you may also be required to pay the interest on any pending stamp duty land tax amounts.
**A buy to let mortgage will be secured against your property.
Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.