Calculating Stamp Duty
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The lowdown on Stamp Duty Land Tax costs

Stamp Duty Land Tax is paid when buying a property or land over a certain threshold price in England or Northern Ireland. It’s due within 14 days of completion or date of entry. Over the last few years, there have been changes to stamp duty rules and rates. This tax can add thousands of pounds to the cost of your property investment purchase, so it’s important to know what you’ll likely need to budget for.

 

Residential properties

 

When buying freehold and leasehold residential properties, the stamp duty tax rates will apply depending on the value of the property.

 

  • Zero tax for properties with a value up to £125,000
  • 2% tax for the portion between £125,001 to £250,000
  • 5% tax for the portion between £250,001 to £925,000
  • 10% tax for the portion between £925,001 to £1.5m
  • 12% tax for any portion above £1.5m

 

When buying a new residential leasehold property, you have to pay an additional 1% stamp duty if the annual rent throughout the lease life is over £125,000, except when buying an existing assigned lease. 

 

Tip: Many property investors put a focus on buying property investments for £125,000 or less to minimise or eliminate the amount of stamp duty they have to pay.

 

Non-residential and mixed-use properties

 

When purchasing freehold non-residential and mixed-use properties, the stamp duty tax rates will also apply depending on the value of the property. 

 

  • Zero tax for properties with a value up to £150,000
  • 2% tax for the portion between £150,0001 to £250,000
  • 5% tax for any portion above £250,001

 

Tip: Consider investing in a build to rent development. When a new property is being built out, the stamp duty is based on non-residential rates. This is because when the investment is purchased there isn’t a residential property on the land yet. Additionally, in this case, investors wouldn’t be liable for the additional 3% stamp duty surcharge for a second property.

 

When buying a new leasehold non-residential or mixed-use property, you have to pay stamp duty on both the purchase price of the lease by using the tax rates listed above and the value of the annual rent, also called net present value. Each are calculated separately and then added together. It’s important to note that with an existing assigned lease, you only pay stamp duty on the lease price.

 

The net present value is based on the annual rent over the lease life.

 

  • Zero tax for net present value of rent between £0 to £150,000
  • 1% tax for portion between £150,001 to £5,000,000
  • 2% tax for any portion above £5,000,000 

 

Higher rates, reliefs and exemptions

 

For second homes and investment properties, the extra 3% stamp duty surcharge was introduced on top of the standard rate in 2016 for properties over £40,000. This is a cost property investors need to budget for when purchasing additional properties.

 

Note: There are ways to avoid the additional 3% stamp duty surcharge. For example, if you give away or sell your previous main residence within three years of purchasing a new property, you can apply for a refund. 

 

If you’re new to property purchasing and investing, first-time buyers can receive relief from stamp duty. First-time buyers don’t have to pay any stamp duty tax for properties valued up to £300,000, and you pay only 5% on the portion between £300,001 and £500,000.

 

There are other circumstances that include reliefs and exemptions. To claim relief, you still have to file a return, even if you don’t need to pay any tax. Exemptions mean you don’t have to pay stamp duty or file a return. Check out guidance from HM Revenue and Customs to see if any apply to you.

 

Budget for stamp duty

 

PropertyMenu’s Deal Calculator calculates the estimated stamp duty surcharge depending on the price of a property investment deal. We want to help investors by providing knowledge on the costs related to property investments and transparency to the numbers behind investment deals.

 

At PropertyMenu, we also work with trusted professionals who can provide answers and advice on stamp duty and other tax queries. Please contact us if you need any tips or recommendations.

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