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SDLT, LBTT and LTT hit of buying an investment property

11 Apr 2023 | BY Claire Critchley

Where a property is purchased in England or Northern Ireland and the consideration exceeds the relevant threshold, stamp duty land tax will be payable. However, where the property is an additional residential property, a supplement applies. For properties in Scotland, the charge is to Land and Buildings Transaction Tax (LBTT) and in Wales, the charge is to Land Transaction Tax(LTT). As in England and Northern Ireland, a supplement applies to second and subsequent residential properties. As the supplements and charges vary, the location of the property will affect the tax that is payable.

England and Northern Ireland

Stamp Duty Land Tax on second and subsequent residential properties attracts a 3% supplement in addition to the usual residential rate. Although the residential SDLT threshold is set at £250,000, the supplement bites if the consideration is more than £40,000. The rates charged on second and subsequent residential purchases are shown in the following table.

Consideration Rate (including 3% supplement)
Up to £250,000 3%
The next £675,000 (£250,001 to £925,000) 8%
The next £575,000 (£925,001 to £1.5 million) 13%
The remaining portion above £1.5 million 15%

The supplement does not apply if the property is the only residential property that the purchaser owns anywhere in the world.

Example

Tony owns a main residence and a property portfolio of three residential properties. He purchases a further residential investment property for £500,000. He pays SDLT of £27,500 on the purchase ((£250,000 @ 3%) + (£250,000 @ 8%)). This is an effective rate of 5.5%.

SDLT on commercial properties and mixed-use properties is payable at the non-residential rates. There is no SDLT to pay where the consideration is less than £150,000. Thereafter, SDLT is charged at 2% on the next £100,000 and at 5% on the remainder. There is no supplement.

Scotland

Land and Buildings Transaction Tax applies to property purchases in Scotland. A supplement, the Additional Dwellings Supplement (ADS), applies on the purchase of an additional residential property in Scotland which has a value of £40,000 or more. Since 16 December 2022, the ADS has been set at 6%.

The rates charged on second and subsequent residential properties in Scotland are shown in the table below.

Consideration LBTT (including ADS)
Up to £145,000 6%
Next £105,000 (£145,001 to £250,000) 8%
Next £75,000 (£250,001 to £325,000) 11%
Next £425,000 (£325,001 to £750,000) 16%
Over £750,000 18%

Example

Tracey has a number of buy-to-let properties in Scotland. She purchases a further residential property for £500,000. She must pay LBTT of £53,350 ((£145,000 @ 6%) + £105,000 @ 8%) + (£75,000 @ 11%) + (£175,000 @ 16%)). This is an effective rate of 10.67%.

Wales

Purchases of property in Wales attract LTT. Higher residential rates apply to second and subsequent residential properties. The higher residential rates are shown in the table below.

Consideration Higher residential rate of LTT
First £180,000 4%
Next £70,000 (£180,001 to £250,000) 7.5%
Next £150,000 (£250,001 to £400,000) 9%
Next £350,000 (£400,001 to £750,000) 11.5%
Next £750,000 (£750,001 to £1.5 million) 14%
Over £1.5 million 16%

Example

Tom has a property portfolio comprising four residential properties in Wales. He buys a further residential property in Wales for £500,000. He must pay LTT of £37,450 ((£180,000 @ 4%) + (£70,000 @ 7.5%) + (£150,000 @ 9%) + (£100,000 @ 11.5%)). This is an effective rate of 7.49%.

Partner note: FA 2003, s. 55A; Land and Buildings Transaction Tax (Scotland) Act 2013, s. 26A; The Land Transaction Tax (Tax Bands and Tax Rates) (Wales) Regulations 2018 (SI 2018/128W)

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