Want to know how stamp duty is charged on your UK property investment? Our overview should help give you some more clarity.

You have probably heard a lot of information about stamp duty in 2020.

The UK property tax has been a big topic of recent conversation from home buyers and property investors alike. We’ll explain in more detail in this article the changes that were made in 2020.

But what are the main things you need to know if you’re a property investor? How is stamp duty for investment property calculated?

Here are some of the main things you need to know.

(Please note: Select Property Group is not a tax advisor. Please use this article as a guide only and contact your financial advisor for further support).

What is stamp duty?

Stamp duty, or stamp duty land tax (SDLT) to give its full title, is a tax that’s applicable for any residential property purchase or investment in England and Northern Ireland.

It is payable upon completion of the purchase. For off-plan properties, SDLT is paid upon completion of the building.

However, the taxable amounts vary depending on whether you’re buying a property that will be your primary UK residence, whether it’s a second home or investment, or if you are a non-UK resident.

Differences by UK nation

It’s important to note that SDLT is only applicable to properties in England and Northern Ireland.

Both Scotland and Wales have their own equivalents of the tax. In Scotland, it’s Land and Buildings Transaction Tax (LBTT), while in Wales it’s Land Transaction Tax (LTT).

All three taxes are applied differently and are calculated in different ways.

In this article, we are discussing SDLT on residential property in England and Northern Ireland.

What is the stamp duty holiday?

In July 2020, UK Chancellor of the Exchequer, Rishi Sunak, announced a stamp duty holiday for property buyers in England and Northern Ireland.

Valid until 31^st March 2021, anyone purchasing a property to be used as their primary residence will not pay any SDLT if the property is valued below £500,000.

The move was designed to drive activity and increase buyer confidence in the UK property market following the three-month national lockdown in the second quarter of 2020.

However, it’s important to note that despite the stamp duty holiday, different rates are applied for non-resident buyers or those buying a property for investment purposes.

SDLT Holiday Rates in England & Northern Ireland – Valid Until 31^st March 2021

Example calculations
(based on a property valued at £640,000)

Own home

• 0% on the first £500,000
• A remainder of £140,000 of the property’s value falls into the second SDLT band, levied at 5%
• 5% of £140,000 = £7,000 total SDLT payable

Second home/investment property

• 3% on the first £500,000 = £15,000
• A remainder of £140,000 of the property’s value falls into the second SDLT band, levied at 8%
• 8% of £140,000 = £11,200
• £26,200 total SDLT payable

How to calculate stamp duty from 2021

From 1^st April 2021, the previous rates of SDLT that were in place prior to the stamp duty holiday will be reintroduced.

As above, those buying a property to use for their own primary residence will be subject to a separate set of SDLT rates from those purchasing a property for investment purposes.

But there will also be a new additional rate of SDLT that non-UK residents will need to pay when investing in property. The new additional 2% surcharge on investments made by non-UK residents will apply to all property purchased in England and Northern Ireland from 1^st April.

SDLT Rates in England & Northern Ireland – From 1^st April 2021

Example calculations
(based on a property valued at £640,000)

Own home

• 0% on the first £125,000
• 2% on the next £125,000 which falls into the second SDLT band = £2,500
• 5% on the remaining £390,000 which falls into the third SDLT band = £19,500
• £22,000 total SDLT payable

Second home/investment property

• 3% on the first £125,000 = £3,750
• 5% on the next £125,000 which falls into the second SDLT band = £6,250
• 8% on the remaining £390,000 which falls into the third SDLT band = £31,200
• £41,200 total SDLT payable

Non-UK residents buying investment property

• 5% on the first £125,000 = £6,250
• 7% on the next £125,000 which falls into the second SDLT band = £8,750
• 10% on the remaining £390,000 which falls into the third SDLT band = £39,000
• £54,000 total SDLT payable

Stamp duty exemptions

Based on a range of different circumstances, some people may be exempt from SDLT in England and Northern Ireland.

Some of these circumstances include:

• First time homebuyers, who are eligible for 0% stamp duty up to £300,000 and 5% on any remainder between £300,000 and £500,000
• Inherited property that’s been left to you in a will
• A property that is transferred because of divorce or dissolution of a civil partnership
• A freehold property that is bought for less than £40,000

You can find a full list of SDLT exemptions on the UK government website.

Is avoiding stamp duty possible?

No. Unless you are eligible for any of the exemptions mentioned above or listed on the UK government website, you will be permitted to pay SDLT on any property transaction in England or Northern Ireland.

However, if stamp duty costs are impacting your ability to fund a purchase, you may want to reconsider the location and type of property you’re purchasing.

The greater the value of the property, the more SDLT you will need to pay. For example, a large house in central London will naturally be more expensive than an apartment in Manchester city centre. Thus, you will be required to pay a significantly smaller amount of stamp duty on the apartment in Manchester, compared to the larger house in London.

So, while avoiding stamp duty is not an option, you may wish to make SDLT costs one of the key factors when deciding on which property to buy and where.

Find out more about investing in UK property

Select Property Group is one of the UK’s leading developers and property investment specialists for domestic and overseas-based investors.

We have sold over £1 billion worth of UK property to date, with premium-grade investments located in some of the UK’s strongest investment cities.

For more information about SDLT costs for investors, or for more details about our latest investment opportunities, please contact a member of our team today.