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What do I need to know about the 3% Stamp Duty surcharge?

By Guest Blogger on in Buying

What do I need to know about the 3% Stamp Duty surcharge?

By Ryan Weston, writing on behalf of Just Landlords

On the 1 April 2016, the Government introduced an additional Stamp Duty surcharge on buy-to-let and second property purchases.

This measure was introduced as a wider collection of polices aimed at cooling the buy-to-let market and making more homes available for first-time buyers.

Many landlords have been left with significant additional costs because of the charges. But what properties are affected and how could the charges affect your purchase decisions moving forward?

Who is affected?

The additional Stamp Duty surcharge relates to all additional residential property purchases made over £40,000. As a result, this surcharge will apply to most acquisitions made by landlords.

A dwelling subject to charges could be a buy-to-let property, holiday home or property being adapted for residential use. Commercial properties however are not subject to the additional surcharge.

What has changed?

The new second property and buy-to-let stamp duty rates are in a tiered system, similar to those for residential stamp duty and income tax.

Each section of a property’s value is now subject to an additional stamp duty rate, on top of the usual rate. The higher rates of Stamp Duty Land Tax (SDLT) apply to the purchase of property in England, Wales and Northern Ireland.

The table below indicates how you’re charged the extra three per cent SDLT corresponding to how the value of a property falls into each band:

Band Existing residential SDLT rates New additional property SDLT rates
£0* – £125 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

Source: Government website

For example, if a buy-to-let landlord were to purchase a property for £300,000, they would be charged:

Three per cent SDLT on the first £125,000 = £3,750.00
Five per cent SDLT on the next £125,000= £6,250.00
Eight per cent SDLT on the final £50,000 =£4,000.00

This adds up to £14,000, representing an additional £9,000 in Stamp Duty.

Are there exemptions?

It’s possible to avoid the additional three per cent buy-to-let stamp duty. If the total price you pay for a property is under £40,000, there is no charge.

In addition, caravan, mobile home or houseboat purchases will also be exempt from stamp duty charges, regardless of value or if it’s a main residence.

Contrary to initial expectations, limited companies or companies with a portfolio of fifteen or more properties will still be subject to the extra three per cent surcharge.

Can you reduce the impact?

Some purchase types will come outside of the rules, but these are mostly limited to replacements of main dwellings. This means you must sell your replaced property within three years of acquisition, preventing landlords from moving between properties to avoid the charge.

On occasion, lower commercial rate of Stamp Duty could apply. These transactions include:

  • Acquisitions of mixed-use properties, for example flats above shops.
  • Purchases of six of more properties in a single transaction.
  • Linked purchases, where a commercial property is bought with a residential dwelling.

As a landlord, it’s imperative to seek financial and legal advice if you’re unsure whether Stamp Duty can be reduced on your purchase.

See the Government’s website for further information on the SDLT surcharge, and see our previous post on understanding the stamp duty hike.