Definition: Stamp duty land tax (or Land and Buildings Transaction Tax in Scotland) is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay.
Since 1 April 2016, anyone who buys additional property, including buy-to-lets and second homes, has to pay an extra 3% of the purchase price in stamp duty. This does not apply to land, commercial or semi commercial units, only residential purchases in personal or limited company.
The additional charge applies above the previous “stamp duty land tax” rates. The below table illustrates how the changes may affect you:
*There is no stamp duty on transactions under £40,000.
For example, anyone buying a £250,000 second home or buy-to-let before April paid stamp duty of £2,500. This was based on paying zero per cent on the first £125,000 of the property value and 2 per cent on the portion between £125,001 and £250,000. But since April, landlords have to pay 3 per cent for the first £125,000 and 5 per cent instead of 2 per cent on the amount between £125,001 and £250,000, meaning that they have to pay £10,000 in total.
This clearly affects the buy-to-let market but there are further implications landlords should be aware of:
- Property owned globally is relevant in determining whether a property purchased in England, Wales or Northern Ireland is an additional property.
This means that if someone is purchasing their first or only property in England, Wales or Northern Ireland, and they already own a property outside these areas, they may have to pay the higher stamp duty rate. This would apply to a foreign homeowner buying in Britain, a Briton with a holiday home, or someone who owns a Scottish property.
- It is not possible to ‘flip’ your home anymore – the Treasury is being strict on the definition of a main residence when it comes to the extra stamp duty charge.
If you buy a second property you always have to pay the higher rate of stamp duty, even if you plan to live in it and rent out your old one, known as a let-to-buy.
If you have any questions or would like to source funding to buy an additional property the team at CPC Finance is happy to help.