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Stamp Duty on Buy to Let Property – A Beginner’s Guide

Posted 11th January 2022 by sdlt-admin

Stamp Duty is a complex subject at the best of times – between the various exemptions, exceptions and allowances for various different types of property and property buyer, it can be a nightmare to navigate to the correct answer on the stamp duty due on a U.K. property. But when you are purchasing a Buy To Let property, things get even more complicated…

Back in 2011, when the government was keen to encourage investment in a property market still reeling from the effects of the 2009 global financial crisis, an amendment was introduced to the legislation designed to make the purchase of investment property – including BTL portfolios – more attractive.
Known as Multiple Dwellings Relief or MDR, the relief acts where a buyer purchases multiple properties as part of the same transaction.

Overpaid Stamp Duty on SSAS and SIPP pensions

Where the purchase of one property will see SDLT calculated based on the value of that property, a qualifying MDR transaction will take the average value of properties purchased in that transaction and calculate the Stamp Duty due on each one based on that average value. This can result in significant savings where, for example, a collection of properties of mixed values, some low and some high, are purchased in one go.

Recently, MDR has come into the spotlight following a series of instances where buyers have purchased a property to live in which has an annexe or other self-contained separate dwelling, but it is important to also recall the original purpose of the legislation, which can be useful to those purchasing a small block of flats, or even larger additions to a BTL portfolio.

We’ve made a video on what Multiple Dwellings is, and when you can claim…

In 2016, the waters were muddied further. Investment in BTL property had become less fashionable. The property market was suffering something of a bottleneck, with smaller properties of the type usually favoured by First Time Buyers being bought more often by investors to let out. With First Time Buyers being priced out of the ability to buy a house, the property market as a whole was starting to stagnate. Keen to win some approval from voters, the government introduced the Higher Rate on Additional Dwellings to the Stamp Duty legislation.

Commonly referred to as the ‘BTL Surcharge’, this charge acted to make the purchase of a second or subsequent residential property – whether as a second home or a BTL – more expensive and therefore slightly less attractive.

The charge works by applying an additional 3% to each ‘slice’ of a property’s value for Stamp Duty purposes, so even a second property bought for less than the minimum threshold of £125,000 (usually referred to as the ‘nil rate band’) will attract SDLY of 3% of the purchase price.

2022 UK housing market – will there be a change?

You might logically assume that the introduction of the surcharge would see the abolition of MDR, given their apparently opposed aims. Yet both remain on the statue book, and both therefore still assist/impede the acquisition of second or subsequent residential properties.

If you think that this may have caused additional confusion for buyers and their legal advisers, you’d be right. The rushed nature of the introduction of the surcharge saw many exemptions having to be stated by the government in the months following its introduction, and many cases going catastrophically wrong.
Stories in the property industry were rife of buyers losing purchases or having to take out additional finance when a solicitor advised at the eleventh hour that the surcharge was in fact due.

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Equally, many buyers found themselves paying the surcharge on the advice of overly cautious legal advisers only to find later that it was not payable in the first place.
And finally many BTL Landlords have been incorporating and, quite incorrectly, been told to pay SDLT when selling or transferring to their own company.

Ultimately, as with any complex tax matter, the best course of action is to seek expert advice. Here at SDLT Refunds, we have assisted hundreds of clients, including BTL investors, in reclaiming erroneously overpaid Stamp Duty.

Contact us to see if you are eligible for a Stamp Duty Refund from HMRC!

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SDLT Refunds is a division of Cornerstone Tax.
You can call us on 03333 050954 or email us at newbusiness@ctatax.uk.com