How stamp duty could affect your next buy to let investment

Both 2014 and 2016 were big years for stamp duty, and in today’s everchanging property market, investors need to know how the updated regulations for 2018 will impact on investments in buy-to-let property.   

Firstly, if investing in purpose-built student accommodation, you can stop reading now! Stamp duty tax doesn’t apply to student investments built solely for student living, so those electing this sector for portfolio additions can look forward to avoiding the latest hikes on residential and commercial units.

However, if you’re looking to invest in a residential property, pay attention to the up-to-date rates on stamp duty which RW Invest explain in great detail in their expert stamp duty calculator. Unlike buyers of single property which the purchase will mean owning one property at any one given time, buy-to-let stamp duty is paid on properties above £40,000 – an unwelcome difference in comparison to the £125,000 threshold on solo investments. This confirms that only buy-to-lets under £40,000 will be completely exempt from stamp duty tax.

Fairly rare to find in the buy-to-let market with superior cities rising prices every year, for properties over £40,000 but less than £125,000, the 3% rate applies. 5% is then due on the next banding between £125,000 and £250,000. For example, with a buy-to-let apartment costing £175,000, investors need to factor in the £6,250 payable in stamp duty. Furthermore, 8% of the tax is liable to pay between investments of £250,000 and £925,000 and 13% on property over £925,000 but less than £1,500,000.

Anything over £1.5 million has 15% stamp duty tax paid. However, it’s important to distinguish that the individual rates are paid on portions of the property price. Stamp duty tax on a £1.5 million investment for instance is not worked out solely by calculating 15% of £1.5m, but by adding 3% on the portion less than £125,000 and 5% due on the portion from £125,000 to £250k, and so on.

The complex and somewhat mind-boggling tax isn’t too intimidating after a little research, and the good news is that solicitors and investment companies can talk you through all of the calculations, but don’t get caught up in all the latest first-time buyers news. It’s rare that investors in buy-to-let qualify for this relief as they usually fall into the category of additional property buyers who must pay the full amount on increased rates of 3% on property. First-time buyers, around 80% in the UK, who don’t pay any stamp duty tax on properties under £300,000 can save thousands after the new regulations were put in place.

There will be even more tax changes rolled out in April 2019 where Capital Gains Tax will have to be paid within 30 days of property sale. Currently paid at the end of the tax year, this is a substantial change for investors alongside stamp duty rates and it’s vital to bear tax in mind and thoroughly work out your finances before embarking on buy to let investments.

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