Entering into the buy-to-let sector is more expensive than ever, but when done wisely can reap investment returns which have the ability to outperform the stock market.

Something to note is that if you are buying as a landlord, your rate of stamp duty will be higher than that paid on any residential home you own. 

The surcharge can add thousands of pounds to the cost of your investment, so it is important to understand your bill – and ways in which you can legitimately reduce it.

Second homes and investment properties in England and Northern Ireland are subject to a 3pc stamp duty surcharge on top of normal rates.

For example, if you purchased a home for £213,000 – the price of a typical rental property in England – as your main residence, it would be exempt from any stamp duty as it falls under the standard nil-rate threshold of £250,000. 

But purchasing a property at this price as a buy-to-let would incur a 3 per cent tax charge of £6,390. The 3 per cent surcharge is added to each of the tax bands which apply to standard property purchases, so you will pay stamp duty at a rate of 8 per cent (5pc + 3pc) on the value of a property above £250,000 up to £925,000 and 13 per cent (10pc + 3pc) on the value between £925,000 and £1.5m. 

The most reliable way to reduce your stamp duty liability is to negotiate the purchase price down with the seller. You will avoid paying the second home surcharge if the property is worth less than £40,000, although you will be hard pressed to find any within this budget.

You are likely to have more success haggling down a property price into a lower tax band. The property downturn has forced one in 10 sellers to slash at least 10pc off their asking prices as demand slumps. 

Landlords paying in cash are in a prime position to negotiate on price, with sellers placing significant value on a quick and simple transaction with no chain.

Temporary discounted rates

You will also benefit from a reduced rate of stamp duty if you purchase a buy-to-let property before April 2025. 

The nil-rate threshold for stamp duty tax has temporarily doubled from £125,000 to £250,000 in England and Northern Ireland, but the tax break ends in March 2025. 

An investor purchasing a buy-to-let property for £250,000 has had their stamp duty bill cut from £10,000 to £7,500 – a saving of £2,500. If you purchase a property up to £250,000, you will only need to pay the 3pc surcharge and not the 2pc standard rate of tax which would ordinarily apply to transactions over £125,000. 

When the nil-rate threshold halves from April 2025, landlords will return to paying 3pc on the property value up to £125,000 and 5pc (2pc + 3pc) on the value over £125,000 and up to £250,000.

Buying a buy-to-let as your first property

If you are a first-time buyer purchasing a buy-to-let property, you will not incur the second home stamp duty surcharge. But you will not qualify for any first-time buyer tax relief either and instead pay standard rates.

If you are intending to buy an investment property as a first-time buyer this may cause problems with mortgage lenders, who prefer buy-to-let borrowers to already have their own property.

If you need any advice or are looking to buy an investment property we would be delighted to assist and help you with a ready made team. Call direct on + 44 (0) 207 993 4081 or simply send an email for a fast response.