Chancellor Rachel Reeves delivered a sucker punch to second home buyers and landlords during Wednesday’s Budget in the form of a fresh stamp duty hike.
These buyers already faced a 3 per cent surcharge above and beyond what those purchasing a property to live in currently pay.
However, from 30 October that went up to 5 per cent, adding thousands of pounds to the cost of buy-to-let and second home purchases.
Buy-to-let investors, developers and second home buyers will likely be wondering what this will mean for them – particularly if they are in the process of buying a property right now.
This is Money has found out what they need to know.
Buy-to-let attack: Stamp duty on an additional property has been hiked to 5 per cent
Who will pay the 5% surcharge?
The extra tax impacts those wanting to buy a second home in England or Northern Ireland, such as a holiday home or pied-à-terre.
It will also impact buy-to-let landlords and also some property developers looking to flip properties and sell at a profit.
Non-UK buyers based overseas who own a property anywhere else in the world will also be liable for the 5 per cent surcharge. They also pay an extra 2 per cent on top of that, so a 7 per cent surcharge overall.
This extra charge kicks in if one or more of the buyers of a property is a non-UK resident.
How much more stamp duty will you pay?
Under previous rules, a £300,000 property with the surcharge included would cost £11,500 in stamp duty.
That has now risen to £17,500 with the surcharge rising to 5 per cent.
On the same property, a person buying the home to live in would pay just £2,500 – and if they were a first-time buyer, nothing at all.
A second home purchase costing £500,000 previously cost £27,500. Now it will set someone back £37,500.
Meanwhile, second home purchases on a £1million property will now be £91,250. That’s up from £71,250 before the Budget.
What if you have already exchanged contracts?
If you exchanged contracts prior to or on 30 October, you can breathe a sigh of relief as your purchase should not be impacted by the new 5 per cent surcharge.
You’ll be liable to pay the previous 3 per cent surcharge.
What if you have not yet exchanged contracts?
Unfortunately, if you have not exchanged contracts in time you will be liable for the extra surcharge when you complete.
Will my stamp duty bill go up again from April?
Possibly, depending on the value of the property you buy.
The basic thresholds at which home buyers start paying stamp duty will revert to the levels set before temporary changes were made in 2022.
For all home movers, this means the basic threshold at which you pay 2 per cent tax will be reduced to £125,000 from the current level of £250,000.
However, first-time buyers are seeing their threshold fall from £425,000 to £300,000.
It means further stamp duty costs for second home purchases which complete after 31 March 2025 will all have to pay 2 per cent on the portion of a purchase worth between £125,000 and £250,000.
This means anyone who buys property over £125,000 will be impacted by the changes – except for first-time buyers.
Anyone who buys a second property worth £250,000 or more will find they are paying £2,500 more.
Anyone who buys something worth between £125,000 and £249,999 will find they pay between £0 and £2,500 depending on the purchase price.
For example, a £200,000 second home purchase will see the tax rate rise from £10,000 to £11,500 from 1 April.
Someone buying a £300,000 property will now pay an additional £2,500. This means instead of paying £17,500, they’ll pay £20,000.
What if I am buying my next home before I sell my current one?
If you are a home mover and buy your new property slightly ahead of selling your current one, you may also fall in to the stamp duty surcharge net.
You will still have to pay the extra 5 per cent stamp duty charge because you are technically a second home buyer, even if you intend to sell your current home.
The good news is that it is possible to reclaim the surcharge back if you sell your existing home within 36 months.
If it takes longer than 36 months then you may still be able to get a refund as long as all of the following apply.
First, you purchased the new home on or after 1 January 2017.
Second, exceptional circumstances stopped you from selling your old home, for example government restrictions because of coronavirus, or a public authority blocking the sale.
And finally, you have now sold your old home.
Tax rise: Rachel Reeves targeted landlords and second home owners in the Budget, implementing an unexpected hike in the stamp duty they pay when buying property
When do I need to pay the stamp duty?
Stamp duty needs to be paid within 14 days of completing your purchase.
Your solicitor or conveyancer will submit your stamp duty return to HMRC on your behalf following completion.
They typically request these funds from you prior to completion.
Can a mortgage cover stamp duty costs?
No, the stamp duty can not be rolled up as part of the mortgage. On top of your deposit, in order to complete you need to ensure you have adequate funds ready for the extra stamp duty.
Should you pull out or renegotiate?
If you feel the extra cost is too much to bear, you could consider trying to re-negotiate with the seller.
For example, you may be able to come to an agreement where you can split the difference and knock 1 per cent off the price you have agreed.
Under current rules, a £300,000 home with the surcharge included would cost £11,500 in tax
What does it mean for property prices?
Given that most buy-to-let investors take a long term view, it’s unlikely to dissuade many investors from continuing to buy.
It may put some off who might otherwise have bought were stamp duty costs lower, but this is unlikely to have much of a long-term impact on property prices.
There are arguably much larger forces at play. For example, economic factors such as interest rates, inflation and unemployment or whether there are enough homes being built in the areas where people want to live to keep up with growing demand.
Ultimately if you are buying in an area that is popular with buy-to-let investors or second home owners and the extra stamp duty surcharge puts some of the competition off, then that may put you in a better position to negotiate a better deal with sellers.
Will a higher stamp duty bill reduce capital gains tax when I sell?
As a property investor, you can deduct the costs of buying from your capital gains tax when you come to sell.
Stamp duty, alongside estate agent fees and solicitors costs, can be deducted from any house price growth you make when you sell the property when calculating the overall gain.
Capital gains tax, known as CGT, is levied on profits on assets including second homes and buy-to-lets.
There is an annual CGT-free allowance of £3,000 and the tax is charged on profits above this.
CGT on any profits from second homes and buy-to-lets is charged at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.
Although capital gains and income tax are separate, profits are added to other income to decide the rate paid.
Will stamp duty be payable if you are gifting a property to someone?
If you are giving a property as a gift to someone, then you won’t have to pay stamp duty if there’s no outstanding mortgage.
If it comes with a mortgage, stamp duty might be payable on the value of the mortgage.
Bear in mind that if you gift a property, you will be liable to pay CGT on any increase in market value since you purchased it.
Also, if you gift a property to a limited company rather than a person, you will be liable to pay stamp duty on the full market value.
Does it only apply to property purchases in England?
It applies to people buying second properties in England and Northern Ireland.
Wales and Scotland both have their own version of stamp duty.
In Scotland, the tax you need to consider is the land and buildings transaction tax (LBTT), which replaced the UK stamp duty land tax (SDLT) in Scotland from April 2015.
Similar to SDLT in England, the tax is charged to the buyer when purchasing a property.
The levy needs to be paid on properties worth more than £145,000.
For property worth more than that, the portion between £145,001 and £250,000 is taxed at 2 per cent. The portion between £250,001 and £325,000 is taxed at 5 per cent. The slice between £325,001 and £750,000 is charged at 10 per cent and anything over that is taxed at 12 per cent.
But like the stamp duty surcharge in England, Scotland has what it calls an additional dwelling supplement (ADS), which is charged on top of LBTT when someone purchases a second property.
In Scotland, ADS adds an extra 6 per cent on top of standard LBTT rates.
This means, for example, someone buying a £300,000 second property will face a tax bill of £22,600 rather than £4,600 if it was their only home.
And someone buying a £900,000 second property will pay £120,350 in tax, rather than £66,350.
LTT replaced Stamp Duty Land Tax (SDLT) in Wales from 1 April 2018.
The current LTT threshold on second homes is higher than normal rates. starts in Wales and the rate payable depends the property value.
For anything less than £180,000 you pay 4 per cent, then on the portion between £180,000 to £250,000 you are taxed at 7.5 per cent, then between £250,000 and £400,000 it’s 9 per cent.
Between £400,000 to £750,000 you pay 11.5 per cent. For the portion over £750,000, up to and including £1.5million it’s 14 per cent per cent, and then 16 per cent for anything over£1.5million.
Someone buying a £300,000 second property in Wales will pay £16,950 while someone paying £1million would get a bill of £101,200.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.