Buy to let mortgages allow a buyer to purchase a property with the intention of renting it out in the future. However, there are many aspects of a buy to let mortgage that differ from a regular, residential mortgage.
Even if you are buying a property for the sole purpose of letting it out to tenants, you still have to pay stamp duty. In fact, the percentage you have to pay in tax is higher than with a residential property. However, if you are a first time buyer, or if your property is under a certain price threshold, then the amount you pay is reduced.
What is Stamp Duty?
Stamp Duty (short for Stamp Duty Land Tax) is the tax placed upon the purchase of your home. In short, it’s a percentage of the amount you are paying for a property that can be paid through a mortgage or with your own money.
Stamp Duty is applied if you are buying a freehold property, a new or existing leasehold, a property through a shared ownership scheme or are transferred land or property in exchange for payment[1]. This applies to 99% of home purchases, so there is a very high chance that you will be paying this tax when you buy a house or flat.
How is it different for a buy to let property?
For residential properties, the lowest amount of Stamp Duty you will pay is 2% on properties valued between £125,000 and £250,000. However, if you are investing in a buy to let as a first-time buyer, the Stamp Duty rates for your investment property are lower.
However, the threshold for buy to let properties is usually much lower, as buy to let properties are most often counted as second homes. You can see the typical Stamp Duty rates for second homes and holiday homes in the table below.
| Portion of property price (England and NI) |
Buy-to-let Stamp Duty rate |
| £0 – £40,000* |
0% |
| £0 – £125,000** |
3% |
| £125,001 – £250,000 |
5% |
| £250,000 – £925,000 |
8% |
| £925,000 – £1.5m |
13% |
| £1.5m + |
15% |
*If total property price is £40,000 or less. **If total property price is more than £40,000, you’ll pay the surcharge on the whole cost of the property.[2]
These rates may seem daunting, but when it comes to the long term returns of an investment property, we’d argue it’s worth the extra charge.
To work out how much your Stamp Duty would be, you can use this Stamp Duty Calculator.
Can this change in the future?
Stamp Duty taxes have changed in the past few years, especially due to COVID-19. It is therefore very possible that they can change again. The Stamp Duty ‘holiday’ was introduced between June 2020 – September 2021 to make the prospect of buying even more appealing. Up until July 2021, this relief was extended to properties with a value of up to £500,000 for first-time buyers.
You shouldn’t, however, wait to buy a home in the hopes that stamp duty will change again, since there is no guarantee that there will be another holiday in 2022.
How can Marsh and Parsons help?
If you’re still unsure about how much Stamp Duty you would need to pay on a buy to let property, how many other taxes or charges there are on a property purchase, or anything else regarding buy to let, you can contact one of our specialists today.
At Marsh and Parsons, we provide local knowledge, expert advice and personalised services to ensure your entire buying, selling or renting process is as easy as possible.
[1] https://www.gov.uk/stamp-duty-land-tax
[2] https://www.which.co.uk/money/mortgages-and-property/home-movers/stamp-duty/buy-to-let-stamp-duty-a26by5t8dmcb
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