Here we are going to explore everything you need to know about the higher Stamp Duty rates that apply to investors owning multiple residential properties.
Firstly, what is an ‘additional property’?
Simply put, if you own or have an interest in a property already (anywhere in the world), even if that’s your main home, you will pay a higher rate of Stamp Duty on any subsequent properties that you buy. The same applies if you’re married and your partner has an interest in another property, even if you are not going to own any of the properties together.
So, if you’re a property investor, you’re almost always going to pay the higher rates on all additional properties that you buy.
The higher rates represent a 3% surcharge on top of the standard SDLT rates. Here is what you will have to pay:
Stamp Duty works like most other taxes in that you don’t pay a flat 8% on properties over £250,000 to £925,000 for example – you move through the purchase price bands and apply all applicable rates.
So, for a property purchased at £260,000, your SDLT would be calculated as follows:
Properties bought for less than £40,000 aren’t subject to the higher rate.
There’s also different rules for properties that are a mixture of residential and non-residential – for example a retail unit with a flat above it.
Moveable homes such as caravans and houseboats are also not subject to the higher rates of Stamp Duty.
Reliefs are also available if you are buying ‘multiple dwellings’ such as a block of flats with six units or more. You can apply for something called multiple dwellings relief or alternatively you can choose to pay the non-residential Stamp Duty rates rather than the higher rates.
For properties that are bought by trusts, companies or partnerships, different rules also apply. More information can be found here: gov.uk.
If you want to move into the new property and rent out your existing main residence the higher SDLT rates will still apply.
To avoid paying the higher rate you would have to sell your existing main residence so you can’t get around the extra tax that way.
If you do decide to sell your main residence you need to do so prior to completing your new purchase in order to avoid the higher SDLT. Alternatively, you can pay the higher rate and then claim the extra tax back if you sell your previous residence within three years.
As with all things tax, it pays to consult a specialist, especially if you have a particularly complex situation or the property you’re interested in doesn’t represent your usual sort of deal.
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-Janice Minihan, director and co-founder of Property Deal Store