Stamp Duty must be paid by a buyer of any property in England that costs over £125,000 if it is the sole property owned by an individual and any property that has and agreed sale price of £40,000 or more if it is being purchased as a buy to let.
The rate of tax applicable to a property purchase changes dependent on the value of the property, how many properties the buyer owns or is purchasing in one transaction and which structure a buyer will be owning the property within i.e. a company or trust.
With so many variations on the applicable taxes depending on the property and the circumstances and with so many changes to the system over the years it’s useful to clarify: What is Stamp Duty, how much do I have to pay and when does it have to be paid?
Stamp Duty: A brief history
Stamp duty was originally introduced in England in 1694 during the reign of William and Mary, the transaction tax was put in place to raise money for the war against France. It was not initially applicable to property and was instead imposed on goods such as newspapers, hats and medicines. Stamp duty was initially the same amount no matter of the value of the item being taxed. It wasn’t until 1808 that stamp duty became an ad valorem tax on conveyances of sales which included land and shares which meant the amount of tax was proportionate the value of the item.
Up until 1997 buyers paid 1% tax on properties which cost more than £60,000, The then-Chancellor Gordon Brown introduced a band system meaning the more the value of the property the higher the percentage of tax applicable. The thresholds changed often in response to the changing house prices. In December 2014 the Chancellor at the time, George Osborne, abolished the previous system and introduced progressive charges – this system, although slightly altered, is still in place today.
Stamp Duty Land Tax for Buy to Let Investors
For anyone beginning their investment journey or growing their portfolio of investment property, understanding the applicable stamp duty is a very important factor when setting out the math and planning finances.
The rate of stamp duty changes according to the value of the property. It is worth noting that this article highlights only the charges applicable in England and Northern Ireland. Scotland and Wales have their own unique systems which should be considered if you’re looking at property in either of these regions.
If 6 or more residential properties are purchased in a single transaction they will not be considered as a residential transaction and different rates will apply.
Buy to Let Stamp Duty Rates
Buying a buy to let property means you must pay the increased charges which we’re announced in the 2015 autumn statement and implemented from 1st April 2016.
The government website has a useful Stamp Duty Land Tax calculator, the below highlights the current system in place for those purchasing buy to let property.
|Property Value Band||Stamp Duty Rate|
|£40,000 > £125,000||3%|
|£125,001 > £250,000||5%|
|£250,001 > £925,000||8%|
|£925,001 > £1,500,000||13%|
|£1,500,001 and over||15%|
The percentage of Stamp Duty is applied to each band, it is not one percentage for the entire purchase price.
The easiest way to explain this is by an example:
Total value of buy to let property: £225,000
£0-£40,000 – 0% is owed
£40,000 – £125,000 – 3% is owed – taxable sum £125,000 = £3,750
£125,000 – £225,000 – 5% is owed – taxable sum £100,000 = £5,000
Total tax on a buy to let property purchased for £225,000 is £8,750
Relief for first time buyers
At the present time first time buyers receive some relief from Stamp Duty Land Tax, First time buyers do not have to pay any stamp duty on a property with a value of up to £300,000. Stamp duty applicable on properties with a value over this will be at a reduced rate of 5% on properties valued between £300,001 and £500,000. After £500,000 the usual rates apply.
Unfortunately, even if it Is your first property purchase, a buy to let is not subject to the reduced rates and the normal taxes applicable on buy to let property will apply.
How to pay Stamp Duty
A stamp duty return should be sent to the HMRC and paid within 30 days of the completion of the transaction. If the tax is not paid within the 30 day window you may be subject to interest rates and fines.
In the majority of cases if you are using the services of a conveyancer or solicitor to assist with the purchase of the property it is likely that they will file the Stamp Duty Land Tax return on your behalf. The applicable tax is usually added to the solicitors fees to be paid by the buyer prior to completion so that the solicitor can pay the HMRC on the buyers behalf.
Buying an investment property
If you’re considering buying a buy to let property in England our investment experts are on hand to help. Working with other industry professionals to ensure our clients are provided with the best possible advice and excellent services to ensure they make a well-considered purchasing decision.
To talk through your plans for property investment please contact us on +44 (0) 2039507939 or send us an email at firstname.lastname@example.org.