Guide to Stamp Duty on Buy-to-Lets

Stamp duty on buy-to-let investments is one of the main property taxes that gets tinkered with.

Though keeping tabs on it might not be your top priority when purchasing a second home, this particularly tricky tax is actually crucial. 

If you’re investing in a residential property for letting purposes, you’ll want to avoid paying too much stamp duty – after all, it could mean your investment quickly ends up costing you a lot more!

Luckily, our team understands that confusion and stress over second property tax rules can catch clients off guard, which is why we’re here to help. 

From accountants, tax consultants, chartered surveyors, and solicitors, our specialists offer expert advice on obtaining a stamp duty refund for buy-to-let properties.

To make things even easier, we’ve put together this helpful guide – written by our team of in-house experts – to cover everything you need to know about additional buy-to-let stamp duty.

Here are the topics at a glance:

• What is stamp duty?
• The rules around owning a buy-to-let property and how SDLT is affected
• What is the current buy-to-let stamp duty rate? 
• Who is exempt from paying additional stamp duty rates?
• How you can avoid overpaying
• If investing in a buy-to-let property is worth it
• How to claim a stamp duty refund
• What Stamp Duty Claims can do for you
• And much more!

Here at Stamp Duty Claims, we have successfully assisted thousands of clients nationwide in reclaiming money that was overpaid to HMRC.

Our unbeatable no-win, no-fee service comes from dependable specialists who are on hand when you need financial peace of mind, especially when it comes to getting a stamp duty rebate.

So if you’ve bought a buy-to-let but suspect you’ve paid excess stamp duty land tax (SDLT), we can assist you.

Let’s get started.

What is the stamp duty land tax (SDLT) on a buy-to-let property?

As well as considering the purchase price of one or more additional homes for buy-to-let, you’ll have to think about the increased cost of stamp duty.

This is because, for second-time buyers, the Government places an extra 3% on this charge, which applies to residential purchases intended for holiday homes or lets. 

Essentially, the extra stamp duty charge is intended to cover any home that the buyer doesn’t intend to live in full-time, or only stays in for a short portion of the year alongside their current property.

There are some exceptions to this rule, which we’ll touch on in the next section.

What if this is my first home?

If you’re a first-time buyer, you may not have to pay any stamp duty tax at all (if your property costs less than £250,000) and can claim relief for purchases up to £425,000. For higher-priced properties, the stamp duty rates are organised into price bands set by HMRC, so the amount you’ll be taxed will depend on where your property falls.

Want to work out how much stamp duty you’ll be expected to pay?

A quick summary

Residents of England and Northern Ireland are subject to SDLT – a form of property tax regulated by the Government – if they are hoping to purchase land or property.

• First-time buyers: Subjected to the standard SDLT rate of their price band
• Second-time buyers: Standard SDLT rate + additional 3%

Wales and Scotland have similar systems, but in this guide, we’ll focus on the Stamp Duty Charges that are used across England and NI. 

What are the current rates of stamp duty?

The current buy-to-let stamp duty rates not only apply to buy-to-lets, but also second homes and holiday properties. 

That’s why it’s important to keep an eye on the cost of stamp duty when you invest and extend your existing property portfolio – whether you’re looking to stay in it yourself or rent it out – as HMRC will still deem it a ‘second home’. 

These second homes are automatically charged a higher rate of stamp duty: a fixed 3% on top of the standard rate.

At present, buy-to-let stamp duty rates in England and Northern Ireland are as follows:

The Government states that you are responsible for working out and paying the SDLT on a buy-to-let or additional home. 

After the ‘effective’ transaction date, you have 14 days to file your SDLT return and pay what is due. If you don’t, it could result in especially costly penalties from HMRC, including interest.

However, there’s no need to panic about sorting it yourself. More often than not, this tax is added to your agent, solicitor or conveyancer’s fees should you wish for them to do it on your behalf. This way, you can clear the payment in one lump sum.

If you are looking to sort payment yourself, you can file a return directly through the HMRC website.

As a rule, you’ll have to pay stamp duty if you: 

• Take on an existing or brand-new leasehold
• Buy a freehold property
• Purchase a property through your business or with the help of a limited company
• If you take out a mortgage or buy a house share
• If you take over land or property in exchange for payment

If you fail to file your return – either yourself or through legal representation – you might be missing out on a substantial sum of money.

That’s why we recommend that all of our clients review their accounts properly, as it’s crucial to make sure SDLT has been paid correctly.

Why do I have to pay stamp duty on a buy-to-let?

The higher rates of stamp duty for buy-to-lets have come after a number of economic crises, including the notable affordable housing shortage and the impact of private rent. 

In an attempt to equalise the markets and ensure the availability of homes to groups such as younger first-time buyers, these new stamp duty rates and rules were introduced. 

The Government had hoped that the 3% additional SDLT rate on second homes and buy-to-lets would curb property investor’s enthusiasm for the rental market or stop them continually adding to residential portfolios. 

As a result, there will be more homes available for those just starting out (in addition to extra relief and SDLT exemptions provided for first-time buyers).

It remains to be seen whether this bold move on Stamp Duty has had the intended effect.

That’s because it may force landlords to raise their rates – especially with the ongoing energy crisis, where bills have to be considered within contracts – which could make it even more challenging for those stumping up the cash for bigger deposits and monthly rent demands.

However, SDLT has certainly had an impact on those looking to make a start into the rental market through the use of a buy-to-let – making it more important than ever to keep an eye on those creeping costs. 

Can I avoid stamp duty on a buy-to-let?

As a rule, you won’t need to pay the additional rates of stamp duty if you decide to buy a buy-to-let as your first residential property. 

However, you’ll still find that the normal rates apply. 

This is because you’ll only own one ‘home’. It’s crucial to note that even if you’re a first-time buyer choosing to invest in the rental market, you won’t be eligible for first-time buyer relief. 

Stamp duty land tax still applies to those who are looking to purchase a buy-to-let with someone who already owns a property, whether you’ve inherited a house and plan to let it out or if you split ownership with another person. 

However, if you’ve paid the higher rates of stamp duty on a buy-to-let property but have been unable to rent it out as it is classed as ‘uninhabitable’, we can help. 

Here at Stamp Duty Claims, we secure stamp duty rebates for clients who have specifically bought second properties or buy-to-lets that fall under this classification.

There are nearly fifty scenarios where you could be eligible to make a claim on overpayments, with ‘uninhabitable’ properties being our area of expertise. 

So, why does SDLT not apply for uninhabitable homes?

Essentially, additional rates of stamp duty do not apply for uninhabitable homes because the home cannot be used as residential space. This means the tax becomes defunct, giving clients the chance to claim back thousands of pounds in overpayments.

We are experts in securing refunds on behalf of clients when it comes to ‘uninhabitable’ or ‘derelict’ buy-to-let properties.

However, if you purchased your second residential property during the SDLT holidays in 2020 and 2021, you will receive a smaller refund amount. This is because the tax paid during this time was a reduced rate so there is less to claim back.

Who is exempt from stamp duty land tax?

Some people are automatically exempt from the standard stamp duty rate, while others can access ‘relief’, which reduces their tax burden.

You may qualify for an SDLT exemption if:

• The residential property is inherited through inheritance
• The land or property is transferred without any payment between two parties
• The property has ownership transferred through divorce or the dissolution of a civil partnership
• The freehold property is bought for less than £40,000
• Alternative property financing, for instance, as required by Sharia law
• You buy a new or assigned lease of 7 years or more (as long as the annual rent is less than £1000 and the premium is less than £40,000)
• You purchase a new or assigned lease that is less than 7 years (as long as the amount you pay is less than the residential or non-residential SDLT thresholds)

In any of these circumstances, you don’t have to pay SDLT or file a return.

You mentioned ‘relief’ earlier – what is that?

Relief refers to when the amount of tax you owe to the Government is reduced. For instance, first-time home buyers and people in the following circumstances are eligible for stamp duty land tax reliefs:

• Building companies buying an individual’s home
• Right-to-buy properties
• Employers buying an employee’s house
• Local authorities buying housing as compulsory purchases
• Property developers providing community facilities and amenities
• Multiple dwellings
• Companies transferring property to another company
• Charities buying properties for charitable purposes
• Properties bought by registered social landlords
• Crown employees
• Property investment funds such as Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs)

Remember that, even if no tax is due, you’ll still need to complete an SDLT return to qualify for these reliefs.

Is a buy-to-let worth it?

There’s no question that the booming buy-to-let market is attractive, but there’s a lot to consider if you’re wondering if it’s worth the investment. 

For example, if you’re interested in investing but would rather put your capital into physical assets rather than stocks and shares, a buy-to-let is an appealing choice. 

Of course, there are a number of risks and advantages that come with navigating this aspect of the housing market, especially in the current economic climate. 

Here, we’ll touch on a few to help you feel as prepared as possible before making an expensive choice.

Advantages of investing in buy-to-let property

The main draw to investing in a buy-to-let property is the promise of a consistent income stream. 

As long as you have few ‘void periods’ – the times when your home isn’t rented out – people view buy-to-lets as one of the easiest ways to make money on the property market, with rental yields potentially reaching 7% or 8% in northern regions.

Although neither income nor any capital gain is assured, your property’s worth may rise over time, which is one of the biggest benefits of putting your money into bricks and mortar. 

Many buy-to-let investors prefer to hold real estate because it is a physical asset that they have greater influence over than stocks or shares do. For those concerned about control, you can play as much or as little of a role in every stage of the letting process, providing flexibility in how your investment operates in the working world.

Disadvantages of investing in buy-to-let property

Although investing in buy-to-let properties can be profitable, there are a few issues that could cause you more hassle if not properly considered. 

Due to the substantial costs associated with purchasing residential properties, especially buy-to-lets, investing in this property type should always be viewed as a long-term investment rather than a ‘get rich quick’ scheme.

This means your money will be committed for a considerable amount of time before you start to recoup costs through a steady rental stream. As such, if you don’t think your finances will be steady for the foreseeable future, it might be a better idea to look at alternative ways to expand your portfolio.

As well as the likelihood of additional costs such as stamp duty, a buy-to-let property needs ongoing maintenance, so you must be willing to invest ongoing time, money, and effort into it.

Ultimately, a buy-to-let is a long-term investment and asset that needs careful planning before making any concrete decisions. 

How Stamp Duty Claims can help you with your buy-to-let property

The team at Stamp Duty Claims provides our clients with a first-rate, hassle-free service that makes the rebate process smooth and seamless. 

If you need someone to go above and above for their claim, you can rely on us to provide guidance and support straight from our in-house specialists, with us managing all the paperwork and supporting evidence needed to establish a case.

Which cases can we assist with?

Did you know that there are 49 different reliefs, exceptions and exemptions available for SDLT on second homes and buy-to-lets?

At Stamp Duty Claims, our experts can check your eligibility for a rebate claim free of charge – the assessment takes just 15 minutes! From there, we will take the necessary action to get you your money back.

Get in touch through our social media channels – or book an assessment call directly with us – if you think your property was not suitable for residential use but you still had to pay SDLT at the higher rate. Within 24 hours, a member of the team will reach out.

To get the ball rolling, we’ll ask you a few questions about your unique circumstances to see if we can help.

To help you get an idea of whether you could be in for a claim, here are some of the most commonly used issues we’ve built successful claims around:

• Damp
• Asbestos
• Structural and roofing issues
• Mould growth
• Insect infestations
• Faults with electrics, heating, and water supply
• Missing finishes, floorboards, utilities
• And more

Does any of this sound familiar? Read the full eligibility criteria here.

After we’ve got a clear picture of your buy-to-let, we can see if it properly meets our criteria. Once you’ve given us the green light, our team can start to put a case together with the help of any supporting evidence. 

Don’t worry about collecting all of this data yourself, though. We can work with your solicitor to gain relevant documents without the paper trail causing you stress – providing peace of mind exactly where you need it. 

Simple. Just as it should be.

I haven’t heard of this ‘Uninhabitable Properties’ case law – what’s it from?

We follow the case law presented in PN Bewley Ltd vs The Commissioners for Her Majesty’s Revenue and Customs when determining what is deemed to be ‘uninhabitable’ for buy-to-let properties.

In January 2019, a lawsuit was filed over stamp duty overpayments made by a couple on a newly purchased bungalow.

Their challenge to the April 2016 SDLT was based on charges on the second property. The taxation on this property was higher, being 3% (in this case).

• Additional dwellings of individuals
• A company’s purchase of a dwelling

The bungalow was deemed unsuitable for living, and the couple won the case, recovering £6,000 from a £200,000 property.

Thanks to the evidence, it was revealed that it should never have been considered a ‘dwelling’ at the time of purchase. This is because the property had many problems and needed further attention after purchase, resulting in them overpaying stamp duty.

As a result of the final ruling, we can now use this as a basis to help other people who were wrongly charged higher rates of stamp duty for their second homes. So far, we have successfully claimed over £5M in SDLT rebates from HMRC!

What happens during a stamp duty claim?

Here at Stamp Duty Claims, it can take us four to six weeks to process your rebate from start to finish.

If you win your case, we know you’ll be keen to see your money back where it belongs – which is why we strive to provide reimbursements as quickly as possible, often within 30 days.

We also send all of our requests directly to the HMRC technical department for further assurance. Upon submitting a claim, we communicate regularly with these authorities until it is approved and authorised, for further peace of mind. 

To keep things moving forward, we provide further supporting documentation if a claim is questioned or stopped within 30 days.

Plus, with our ’no-win, no-fee’ guarantee, you won’t be charged anything if the case is dismissed. 

Why choose Stamp Duty Claims?

With our services, you will be able to seamlessly manage your property portfolio and your budget – giving you plenty of time to handle the things that matter most. 

That’s why we’re dedicated to helping anyone who is eligible for a rebate regarding stamp duty land tax (SDLT) overpayments, ensuring their buy-to-let is the most profitable it can be. 

Do you think you may be in with a claim?

Start your rebate journey with us today!