What Every UK Property Investor Should Know About Stamp Duty

what you need to know about stamp duty, uk property investors, buy uk property, stamp duty land tax

As an international property investor, it is of extreme importance that you keep up with current news and any kind of tax changes in your host country. The UK for example recently experienced a change in stamp duty rates whereby investors now have to pay 3% more on every second home they own in the country. This development has brought about a great deal of confusion and quite a number of concerns by property owners worldwide. Here is a quick look at what you need to know about the new stamp duty charges.

What exactly has changed?

As of April 2016, any investor buying UK property as a second home or a buy-to-let property must pay an extra 3% surcharge. This Stamp Duty Land Tax is to be paid in addition to your standard applicable SDLT rates. Here is a quick look at what has changed:

For the first £125,000, the current rate stands at 0% whereby the new rates stand at 3%For the next £125,000, the current rate stands at 2% whereby the new rates stand at 5%For the next £675,000, the current rate stands at 5% whereby the new rates stand at 8%For the next £575,000, the current rate stands at 10% whereby the new rates stand at 13%Above £1.5m the current rate stands at 12% whereby the new rates stand at 15%

If you buy a £275,000 home, then you are not obliged to pay any tax on the first £125,000. However, the second £125,000 will attract a tax charge of 2% (£2,500). The remaining £25,000 will attract a tax charge of 5% (£1,250). This means that you will be paying a stamp duty bill that comes to a total of £3,750 for your £275,000 home.

Are there any exemptions?

This surcharge applies to every UK property purchase with these three exemptions:

  • You completed your property purchase before the 25th of November in 2015.
  • The property is being bought for under £40,000
  • It is the only property you own worldwide.

Why is this 3% surcharge being levied?

The Government says that this property SDLT surcharge was introduced in an effort by the government to rebalance the housing market in the UK in favour of owner-occupiers.

What does ‘only property you own worldwide’ mean?

This means that you will attract the 3% surcharge if you own or even jointly own any other property anywhere else in the world in addition to your UK purchase. If, however, you sell every other property you own in the world after buying your UK property and attracting the 3% surcharge, then you can contact the HMRC for a refund of the 3% you already paid. This only applies if you sell your other properties within 36 months and if the UK property effectively becomes your only property and main residence.

As a property investor interested in the UK market, you may be wondering where the good news is in all these developments. Well, it might be slim, but should you sell your UK property, then your full SDLT, which will include the 3% stamp duty will be deducted from your capital gains. This effectively saves you up to 28% on your Capital Gains.

First Hand Info

Like in any endeavour, learning from experience counts. When big money is involved, learning from the experience and/or mistakes of others so you can avoid potential pitfalls is gold. This is why I make it a point to attend property Networking events whenever I can and simply chat to other investors. PIN Meetings under Simon Zutshi and We Buy Houses Community Meetups under Rick Otton are monthly events, so there are plenty of opportunities to catch up with other seasoned investors. Everyone has a story to tell and hearing other people’s accounts on the matter can help you prepare solutions in advance.

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