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Stamp duty for landlords – what do you need to know?

published on 25/03/2019  

One of the major costs you have to consider when becoming a landlord, or expanding your existing portfolio, is stamp duty.

But what are the rules for landlords? Here, using our experience of operating in the South East London lettings market, we take a closer look at how the system works.

Stamp duty, and then some

In England, anyone buying a property over a certain price must pay stamp duty land tax (SDLT) to HMRC within 30 days from the date of completion or face being hit with a fine.

There are exemptions – in the 2017 Budget, for example, the Chancellor Philip Hammond announced that stamp duty would be abolished for nearly all first-time buyers – but the majority of purchasers have to pay the tax when purchasing a freehold, leasehold or shared ownership residential home worth more than £125,000.

The stamp duty system was changed in the 2014 Autumn Statement to make it more progressive. Instead of a slab structure, where stamp duty was paid on the entire price of a property, a tiered system was introduced instead, with stamp duty only payable on a portion of a property price which falls within each band.

It's now a sliding system based on property prices and thresholds, which is seen as much fairer than the former slab system in operation beforehand.

The current stamp duty rates are 0% for a property worth up to £125,000, 2% for properties with a value between £125,001-£250,000, 5% for homes worth between £250,001-£925,000, 10% for homes worth between £925,001-£1.5 million, and 12% for homes worth more than £1.5 million.

In April 2016, though, an extra surcharge for second and buy-to-let homes was implemented by the government which effectively means landlords and investors now have to pay stamp duty twice. As well as regular stamp duty, anyone buying a second residential home for £40,000 or more faces an extra 3% stamp duty levy.

What's more, the additional surcharge effectively works as a slab tax – charged on the entire price of the property, rather than operating under the tiered system.

The controversial move caused a backlash at the time, and still does to this day – with regular calls for the government to reverse or soften the additional stamp duty that buy-to-let landlords and investors must pay. When introducing the surcharge, the government said it was attempting to dampen the buy-to-let market to give first-time buyers more of a chance to get on the ladder.

It has, as you would expect, left landlords facing much higher stamp duty bills. Let's look at the example of an additional home worth £375,000. Before April 2016, stamp duty on a home of this value would have been £8,750. Add on the additional surcharge, however, and this rises to a much more substantial stamp duty bill of £20,000.

To find out how much you could be paying in stamp duty for an additional home, you can use this online stamp duty calculator to tell you more.

Meanwhile, this Zoopla Q&A on the 3% stamp duty surcharge on second homes may also come in useful to give you more of an idea of how much you'll owe, who has to pay it and any possible exemptions.

Has it dampened the buy-to-let market?

The government introduced the extra stamp duty surcharge with the intention of shrinking the booming buy-to-let market, but has it had the desired effect? Well, it's a mixed picture.

While the latest industry figures from UK Finance show the number of people taking out a buy-to-let mortgage fell 1.1% year-on-year in January 2019, suggesting a contraction in the market as a result of tax and regulatory changes, the number of buy-to-let mortgage deals on offer point to a different picture.

According to findings from financial information site Moneyfacts, landlords can currently pick from 2,162 buy-to-let mortgages – the highest number since before the global financial crisis, when there were 3,305 products on offer.

What's more, rents are holding up – even in spite of chronic Brexit uncertainty – and buy-to-let still represents a very lucrative investment opportunity for those who target the right areas and fill their homes with good, reliable tenants.

Demand to fill these homes certainly shouldn't be an issue for the foreseeable future, with London's population set to grow significantly in the coming years and many of these turning to the private rented sector.

The PRS is now the biggest form of tenure in London, according to the most recent English Housing Survey, with an increasing number of middle-aged and family renters joining the young professionals and students who typically account for a large chunk of the tenant population.

It's often the case that demand is higher for areas with more affordable rents, which is what makes the likes of Hither Green and Brockley appealing to renters. Close enough to Central London to make commuting easy, but with a level of quietness that just simply isn't on offer in the heart of one of the world's busiest cities.

Green space is plentiful, a good range of gastropubs, restaurants, bars and cafes keep locals well-fed and watered, and strong transport links make getting around a breeze.

To find out more about what Bryan & Keegan can offer you, contact us at one of our three offices – we have branches in Brockley and Hither Green, and one in Prime Central London's Park Lane, too.

You can also click here for a free instant online valuation, to give an indication of how much your property could be worth and how much you could be charging in rent. Tags: Bryan & Keegan, Brockley, Hither Green, South East London, Park Lane, Landlords, Letting Agents, Ren