Buy to Let 3% Stamp Duty Surcharge from April 2016

10/12/2017
Buy to let investors and those buying second homes must pay a 3% surcharge on top of the normal residential stamp duty (Stamp Duty Land Tax or SDLT), from April 2016. 


The system will essentially work in the same way as it does now, but the Government has reintroduced a 'slab' at lower price levels which will only affect people buying properties to let and second homes.

How is the initial 'slab' set to work?

For buy to let stamp duty for second home buyers, no stamp duty will be payable for properties purchased for up to £40,000 but above this and for values up to £125,000, the tax will be charged at 3% on the entire property price. Therefore, if they buy a property which is worth more than £125,000, they will have to fork out an initial £3,750 to cover this first tranche (£40,000 - £125,000).

See below for worked examples.

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Examples


1    A residential buyer buys a £250,000 property.

They pay no stamp duty for the value range £0 - £125,000.

They then pay 2% stamp duty on any part of the property's value that falls within the range £125,000.01 - £250,000. So they'll pay 2% of £125,000, which is £2,500.

So Total Stamp Duty = £2,500.

For a buy to let or second home buyer who buys the same value £250,000 property:

From April 2016, they will pay no stamp duty for the value range £0 - £40,000.

They will then pay 3% on the whole value of the part of the property's value which falls between £40,000.01 - £125,000. So they'll pay 3% of £125,000 (i.e. the whole value, NOT £125,000 - £40,000) = £3,750.

They will then pay 5% stamp duty (2% + 3% new surcharge) on any part of the property's value that falls within the range £125,000.01 - £250,000. So they'll pay 5% of £125,000, which is £6,250.

So Total Stamp Duty = £10,000.

2 A residential buyer buys a £400,000 property.

They pay no stamp duty for the value range £0 - £125,000.

They then pay 2% stamp duty on any part of the property's value that falls within the range £125,00.01 - £250,000. So they'll pay 2% of £125,000, which is £2,500.

They then pay 5% stamp duty on any part of the property's value that falls within the range £250,000.01 - £925,000. So they'll pay 5% of £150,000, which is £7,500.


So Total Stamp Duty = £10,000.


For a buy to let or second home buyer who buys the same value £400,000 property:

From April 2016, they will pay no stamp duty for the value range £0 - £40,000.

They will then pay 3% on the whole value of the part of the property's value which falls between £40,000.01 - £125,000. So they'll pay 3% of £125,000 (i.e. the whole value, NOT £125,000 - £40,000) = £3,750.

They will then pay 5% stamp duty (2% + 3% new surcharge) on any part of the property's value that falls within the range £125,000.01 - £250,000. So they'll pay 5% of £125,000, which is £6,250.

They will then pay 8% stamp duty (5% + 3% (new surcharge) on any part of the property's value that falls within the range £250,000.01 - £925,000. So they'll pay 8% of £150,000, which is £12,000.


So Total Stamp Duty = £22,000.

Stamp-duty-table-for-Buy-to-Let-and-2nd-home-buyers-from-April-2016.png


The next move in a tax raid on Buy to Let landlords?

There has recently been 2 other tax areas where changes have been announced that will make buy to let landlords worse off.

From 2017, higher rate tax relief on buy to let mortgage interest (landlords can offset mortgage interest payments against tax on rental income) is being phased out.

Additionally, from April 2016 wear and tear tax allowances are being reduced.

How will the changes affect the buy to let market?

Some forecasters have predicted a frenzied buy to let property buying market in the run-up to April, as parties bring forward their purchases to avoid the new second home and buy to let stamp duty. This would increase prices in the short term, but the level would then similarly fall when the tax came in, all other things being equal.

Any price fall would likely be taken advantage of by richer property buyers looking to build up larger portfolios.

Many commentators predict that landlords will simply reclaim the extra tax from tenants. If there was a base rate rise, the compounded effect may, however, see many landlords struggle to stay afloat.

Landlords can, however, reduce their capital gains tax payments by offsetting purchasing costs, which include stamp duty, against them.

The tax changes may put off house builders and developers, which would be detrimental to efforts to alleviate the current UK housing crisis.

Need an experienced buy to let conveyancing solicitor? Call 0333 344 3234 for an unbeatable fixed fee quote.


*Fixed Fee – No Sale No Fee – CQS Solicitors


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