Reduce Property Gains Tax, Property Investors

Stamp Duty Land Tax (SDLT) rates for Property Investors

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

27th November 2020

What is Stamp Duty Land Tax in England or Northern Ireland?

You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.

Stamp Duty Land Tax (SDLT) is a charge that applies when purchasing land. You can buy a movable building but not pay SDLT. The land, not the building, will cost you SDLT. SDLT rates needs to be paid to HMRC within 14 days of the purchase. Your conveyance solicitor will calculate stamp duty on your behalf using HMRC generic calculators. Most conveyance solicitors will want you to pay this money over to them sooner to prevent the risk of non-payment. The SDLT rates will be documented on the SDLT1 form, prepared by the conveyance solicitor.

Care needs to be taken as conveyance solicitors that calculate stamp duty may charge you more than you need to pay. This is because conveyance solicitors do not consider all the SDLT tax reliefs available to you.

It is not possible to avoid Stamp Duty land transaction tax without the aid of an SDLT refund tax specialist. Avoiding stamp duty rates on second homes can be achieved with the assistance of a landlord accountant at Optimise Accountants. Typically you will be paying stamp duty land tax by law.

Please note that you do not pay Stamp Duty Land Tax on a property worth less than £40,000. This article is relevant for first time home buyers, people buying a second home, property investors, property developers and those that have a holiday home or holiday let. There is an additional stamp duty rates on second homes, which is often referred to as the 3% SDLT higher rate.

Stamp Duty on land purchase is one of the most significant expenses you will incur. This is why it is essential that you get the support of one of our stamp duty accountants to ensure you do not overpay this tax and calculate stamp duty rates for you.

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How much Stamp Duty Land Tax is payable when buying a residential buy to let property?

Residential property Stamp Duty land transaction tax is a banded rate in England or Northern Ireland. It is a scaled charge. If you buy a property for £300,000 then the following SDLT thresholds will apply

Up to £125,000 Zero
From £125,001 to £250,000 2%
From £250,001 to £925,000 5%
From £925,001 to £1.5m 10%
Over £1.5m 12%

Let us look at an example of how to calculate stamp duty rates using the SDLT thresholds.

£0 – 0% X £125,000

£2,500 – 2% X £125,000 (£250,000 less the previous SDLT band of £125,000)

£2,500 – 5% X £50,000 (£300,000 less the previous SDLT band of £250,000)

£5,000 is the total SDLT charge applied to a property value of £10,000.

Albeit holiday lets or a holiday home may be considered commercial in some nature, it is still charged at residential rates for Stamp Duty Land Tax purposes.

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What is the Stamp Duty for second homes? How to avoid Stamp Duty on second homes.

Residential property Stamp Duty rates are different depending on whether you are buying a second home in England & Northern Ireland, Wales or Scotland. You need to carefully calculate stamp duty rates on second homes as conveyance solicitors often make mistakes. The SDLT thresholds can be complex and need to be carefully worked out.

The amount of Stamp Duty rates payable is also different depending on the purchase price of the property, which is why you need to calculate stamp duty tax liability using the SDLT thresholds carefully.

If you sell your own home and buy another home, you will not have to pay the additional 3% on that property. We advise many of our clients to sell their current home to a third party or to their own limited company to avoid this SDLT higher rate.

You will need to calculate stamp duty rates on both the banded SDLT rates and the 3% higher rate whilst being mindful of the SDLT thresholds. The combined amount is what will need to be paid to HMRC within 14 days.

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We continue to develop brand new U.S and UK tax calculators for you to use. We focus on tax calculators such as: Income Tax, Capital Gains Tax, Stamp Duty Land Tax, Inheritance/Estate Tax

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Stamp Duty Land Tax rates for commercial properties 

If you are buying commercial properties, then you will pay SDLT at different rates, as follows in England or Northern Ireland using the SDLT thresholds:

Up to £150,000 Zero
Over £150,000 to £250,000 1%
Over £250,000 to £500,000 3%
Over £500,000 4%

Therefore, you will be paying less SDLT on commercial buildings than you would on residential properties.

Whenever you buy residential properties, you will pay the % figure provided in my article, with the amounts based on a sliding scale.

You might think that the same applies to commercial properties. The harsh reality is that this is not the case. You will pay the % on the full amount on commercial properties once you go over specific values, as shown above.

The rules for commercial properties are also applied if you buy mixed-use properties, such as flats above offices or shops.

Can you see that you will pay more SDLT on commercial properties than you would residential when you calculate stamp duty liabilities in each scenario? Ensure you carefully calculate Stamp Duty using the SDLT thresholds.

Free Online Tax Courses

Want to save tax in the future?

We have now created free online tac courses to help you build wealth whilst paying less tax. Learn today and save tax tomorrow. We have covered the basics of tax filing with HMRC and IRS. We have created courses on advanced planning strategies that will save you tax in the future.

We have training programmes for UK tax and US tax. Learn today and save tax tomorrow

Free online tax course

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Flats above shops or have a residential dwelling with offices

We have recently written an article where you can use the SDLT relief for multiple dwellings relief. This is whilst removing the 3% SDLT additional rate. This is relevant when you buy multiple residential properties that also have a commercial element. This means you do not pay the 3% SDLT rate when claiming MDR in England or Northern Ireland. This charge is in addition to the SDLT thresholds banded rates.

You can work with one of our stamp duty rates experts to work out the numbers on our multiple-dwelling-relief (MDR) calculator. We will calculate stamp duty rates for you to ensure that you do not overpay SDLT when buying a property investment.

Claim SDLT relief for Multiple Dwellings Relief (MDR)

It is possible to reduce Stamp Duty Land Tax when buying multiple properties. UK Landlords can do this by claiming Multiple Dwellings Relief also referred to as MDR. It is important to calculate stamp duty based on the MDR tax relief.

Obtaining an inherited property

If you inherit property through a trust the 3% SDLT surcharge may be ignored on this and subsequent property transactions. This is for the period of three years from the date you inherited the property. This is provided that [Para 16(2)] provided that::

– The beneficiary becomes a joint owner of the interest by inheritance

– Their interest, combined with any spouse or civil partner’s interest does not exceed 50% of the major interest bequeathed

2% SDLT surcharge for Foreign investors buy UK property

The 2% SDLT foreign surcharge measure will apply to land transactions with an effective date of 1st April 2021.

Where contracts are exchanged prior to 11th March 2020 but complete or are substantially performed on or after 1st April 2021, transitional rules may apply. Transitional rules may also apply where a contract is substantially performed on or before 31st March 2021 but does not complete until 1st April 2021 or later.

Please make sure that you calculate stamp duty rates based on the SDLT banded rates, the 3% higher rate and the 2% foreign surcharge,

Free Online Tax Calculators

We continue to develop brand new U.S and UK tax calculators for you to use. We focus on tax calculators such as: Income Tax, Capital Gains Tax, Stamp Duty Land Tax, Inheritance/Estate Tax

Use our online tax calculators today to help you make money-saving decisions tomorrow

Free online tax calculators

Is stamp duty tax deductible?

As we can see from the above information that Stamp Duty Land Tax is a property purchase tax. The big question is this: Is stamp duty tax deductible?

Stamp Duty is tax-deductible but not against income tax. This is because Stamp Duty rates is a capital expense. Stamp duty tax deductible when the property is sold as it will increase the purchase cost of the property. This will decrease the gain and the CGT liability.

So, stamp duty is tax-deductible but not immediately.

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