Buy-to-Let Stamp Duty Guide

A lender will base a buy to let mortgage on the rental income you receive from the tenants who rent the property from you rather than your personal income.

In 2015, the Government introduced higher Stamp Duty rules on buy to let properties to tackle the housing crisis and make it easier for first time buyers to get on the property ladder. By making buy to let properties more expensive, the Government hopes to make them less appealing to property investors and ensure more properties are available for first time buyers. The new Stamp Duty rules were also intended to generate new revenue for the Government.

If the buy to let property is worth over £125,000 and the purchase means you own more than one property, you'll have to pay Stamp Duty. This Stamp Duty rate is a minimum 5% charge in addition to the Stamp Duty you'd already be required to pay. How much Stamp Duty you must pay will depend on the current rates and the purchase price of the buy to let property.

Speaking to an independent mortgage broker is a good idea if you have any concerns regarding your Stamp Duty obligations when purchasing a buy to let property. A broker can assist with the following.

• Calculating Stamp Duty - a broker like John Charcol can help you calculate your Stamp Duty costs based on the property price and any additional charges, such as the 5% surcharge
• Identify ways to reduce costs - a broker can help you explore ways to reduce your Stamp Duty costs, such as structuring your buy to let purchase in a way that may qualify for Stamp Duty relief
• Personalised advice - a broker will use their knowledge and experience of the buy to let and mortgage market to give tailored advice to help you with your Stamp Duty calculation. They'll also be able to answer any questions you have concerning mortgage eligibility
• Access to a broader range of lenders - an independent broker like John Charcol has access to the whole market and can help you reach the right lenders for your needs

Adding Stamp Duty costs to a buy to let mortgage is extremely rare. Most buy to let mortgage lenders require a deposit of around 20% to 25% of the property value to meet their maximum loan-to-value (LTV) ratio requirements of 75% to 80%. Adding Stamp Duty costs to your loan would mean increasing the LTV, which most lenders won't accept.

Avoiding having to pay Stamp Duty on a second property is only possible if the property is worth less than £40,000 or the share of your purchasing property is less than this amount. The only other way to avoid Stamp Duty on a second home is if you're buying a mobile home, caravan or houseboat. You may be able to claim back the Stamp Duty surcharge if you're purchasing a property to be your main residence without having sold your previous one and then selling your old property within 3 years of buying the new residence.

You may be able to avoid paying Stamp Duty on a buy to let if its value falls below the Stamp Duty threshold of £125,000 (in England and Northern Ireland), you're purchasing it through a limited company, or you wish to transfer ownership to another person. If you're replacing your main residence before selling your buy to let property, you may get a refund on the 5% surcharge if you sell the buy to let within 3 years of purchasing your main home.

Investing in buy to let properties can be an effective way of generating a regular income stream. However, it does involve certain risks, such as changes in interest rates, market fluctuations, tenancy vacancies or defaults. Additional costs are also associated with purchasing and owning rental properties, including mortgage repayments, maintenance and repairs and insurance. It's a good idea to get professional advice from an independent mortgage broker who can help you review your options and understand the risks and rewards involved.