The stamp duty holiday can save you thousands of pounds when purchasing a house. But does it apply to buy-to-let properties?
Let’s find out.
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What is stamp duty?
Stamp duty is a cost that buyers must pay when purchasing property or land in England and Northern Ireland that is worth more than a certain price. It works on a tiered basis and you only pay it after a minimum price threshold is reached.
Typically, the threshold is £125,000. However, for first-time buyers the threshold is £300,000.
Scotland and Wales have their own taxes on property and land.
What is a stamp duty holiday?
It’s basically a change to the threshold at which buyers have to pay stamp duty.
Under the current stamp duty holiday, buyers are exempt from paying stamp duty on residential property worth up to £500,000 rather than £125,000. This means tax savings of up to £15,000.
The full tax rates under the stamp duty holiday are as follows:
|
Property value |
Stamp duty rate |
|
Up to £500,000 |
Zero |
|
The portion from £500,001 to £925,000 |
5% |
|
The portion from £925,001 to £1.5 million |
10% |
|
The portion above £1.5 million |
12% |
Chancellor Rishi Sunak introduced the stamp duty holiday in July last year to inject some life into the housing market which had been affected by the Covid-19 pandemic. The tax break was due to end on 31 March but has since been extended to 30 June 2021.
Can I use the stamp duty holiday for a buy-to-let property?
A buy-to-let is a property that has been bought to be rented out to tenants rather than to be lived in by the buyer.
These properties are eligible for the stamp duty holiday. However, buyers have to pay an additional 3% charge on top of the revised rates, just like they did under the old system.
This means that if you are purchasing a buy to let, you’ll have to pay:
- 3% stamp duty on the portion of the property below £500,000
- 8% on the portion of the property between £500,001 and £925,000
- 13% on the portion of the property between £925,001 and £1.5 million
- 15% on the portion above £1.5 million
The same rates apply to those buying second homes.
You can use the free calculator on the gov.uk website to work out how much stamp duty you have to pay for a buy-to-let.
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Is now a good time to invest in a buy-to-let?
Even with the 3% surcharge, buy-to-letters who complete their purchases before the June deadline still stand to save a lot on stamp duty.
A buyer purchasing a £500,000 property would have paid £30,000 in stamp duty under the old system. But under the stamp duty holiday, they’ll pay only £15,000.
Also, property prices have been rising in recent months and some industry experts are forecasting that they will continue with their upward trajectory in the next decade. So there are prospects for equity growth on your buy-to-let.
However, if you decide to go for it, be prepared for the financial costs of being a landlord. You’ll have to budget for things like landlord insurance, boiler cover, tax on rental income and the cost of repairs among others.
Further, with rents falling as a result of the pandemic, you might need to prepare for a lower income than you predicted.
Also, don’t forget that as of April 2020 you can longer claim tax relief on your buy-to-let mortgage interest payments. Instead, you’ll get a tax credit based on 20% of your mortgage interest payments, which translates to a bigger tax bill if you are a higher rate taxpayer.
In a nutshell, before you invest in a buy-to-let, make sure you’ve carefully weighed all the pros and cons to determine whether it’s the right investment for you.
