What is Stamp Duty Land Tax?
Stamp Duty Land Tax (SDLT) is one of the key mandatory taxes that property investors in the UK can expect to pay. It’s a tax paid on any rental property in England and Northern Ireland over £250,000 and it scales according to the property’s value. Having the cost of Stamp Duty Land Tax in mind when you’re planning your investment is vital as it is a key part of your bottom line. In this article, we discuss what Stamp Duty Land Tax is, how much stamp duty is and when you’re legally required to pay it.
How Much is Stamp Duty Land Tax?
The amount of Stamp Duty Land Tax paid on rental property depends on its price. While properties priced £250,000 and under are exempt from this tax, any property that is £250,001 or over will be taxed in incremental bands.
Extra charges also apply on stamp duty if the property you’re purchasing is not your first or you’re buying from overseas.
If you’re buying an additional property, you can expect an extra 3% SDLT to be applied to the base rates. If you’re buying a property from overseas, you pay an extra 2% surcharge on top of this.
The first property band ranges from £250,000 to £925,000, meaning the portion of the property priced between these amounts will be taxed at 5%.
As the property gets more expensive, these rates increase. For example, the portion of the property priced between £925,000 and £1.5 million will be taxed at 10%.
For investors considering Stamp Duty Land Tax on a rental property above the value of £1.5 million, you will be subject to 12% SDLT.
Please remember that investors with multiple residential properties will typically pay 3% additional SDLT.
You can find out more about Stamp Duty on the government website.
Do Overseas Investors Pay Stamp Duty Land Tax?
Overseas investors are not only expected to pay Stamp Duty Land Tax on their rental property, but they will also need to pay a surcharge on top of the normal rate and the additional property charge.
For overseas buyers, there is a 2% surcharge, which was first introduced in July 2020.
This 2% charge is applied to every property band and should be a key consideration for overseas investors looking to enter the UK market.
Related: 5 Myths About Property Investment in the UK For Overseas Investors
When Do You Pay Stamp Duty Land Tax?
Knowing how much SDLT you stand to pay on your rental property is one thing, but knowing when you pay it is another. You have 14 days to pay SDLT from the date of completion or you risk being fined, and it is your responsibility, legally, to ensure this is paid on time.
Who is Exempt from Paying Stamp Duty?
It is a criminal offence to evade SDLT, but there are some exemptions. If you’re a first-time buyer purchasing property below the value of £425,000 and it is occupied as your main residence, you won’t need to worry about paying SDLT. This will reduce to £300,000 in 2025.
Additionally, you only pay SDLT upon completion of a property/piece of land, meaning you won’t need to pay SDLT if no money or payment changes hands. If property is left to you in a will, you also won’t need to pay this tax, or if the property is transferred because of divorce or the dissolution of a civil partnership. Freehold property purchased for £40,000 or less is also exempt from SDLT.
While there are certain exemptions that come with this tax, almost all investors considering Stamp Duty Land Tax on a rental property should think about this tax fairly early on in their investment.
How to Pay Stamp Duty Land Tax
It’s often common practice for your solicitor or conveyancer to iron out the finer details of Stamp Duty Land Tax on your rental property. After collecting the money from you in advance, they will usually work out your Stamp Duty bill and pay on your behalf. Generally speaking, this is usually done on your completion day.
However, if this isn’t the case, you will be expected to complete and send an SDLT return to HMRC and pay within 14 days of completion.
It’s no secret that UK property comes with a wealth of considerations and taxes, especially if you’re an overseas investor, but in comparison to alternative markets, the opportunities that come with the UK market more than compensate for these.