In the Autumn 2024 Budget, the Chancellor announced a 2% increase in the Stamp Duty Land Tax (SDLT) surcharge for additional properties. While this decision presents a new consideration for investors, the UK property market continues to offer excellent opportunities for savvy buyers – particularly in high-demand cities such as Birmingham and Manchester. The key is understanding how to navigate stamp duty in the most efficient way while ensuring full compliance with HMRC regulations.
Below, we explore four ways to reduce stamp duty liability on your buy-to-let investments and mitigate the impact of the recent stamp duty increase.
What is Stamp Duty Land Tax and how does it work?
Stamp Duty Land Tax (SDLT), often referred to simply as stamp duty, is a tax paid when purchasing property or land in England and Northern Ireland. It operates on a sliding scale according to the value of the property. Different rates are charged for each portion of the purchase price that falls within specific price bands.
For residential properties, stamp duty applies on purchases above £250,000; however, from 1 April 2025, this threshold will be lowered to £125,000.
Additional properties also attract a surcharge on top of the standard SDLT rates. This applies when buying a home that is not replacing your main residence, e.g. a buy-to-let investment. The surcharge applies across all rate bands and is payable on the entire purchase price.
Stamp duty rates for residential properties
The current SDLT rates for purchases of a single residential property are:
- Up to £250,000: 0%
- The next £675,000 (the portion from £250,001 to £925,000): 5%
- The next £575,000 (the portion from £925,001 to £1.5 million): 10%
- The remaining amount (the portion above £1.5 million): 12%
However, from 1 April 2025, the bands and rates are changing to:
- Up to £125,000: 0%
- The next £125,000 (the portion from £125,001 to £250,000): 2%
- The next £675,000 (the portion from £250,001 to £925,000): 5%
- The next £575,000 (the portion from £925,001 to £1.5 million): 10%
- The remaining amount (the portion above £1.5 million): 12%
These rates only apply if the home you are purchasing will be the only property that you own. For those purchasing additional properties, including buy-to-let investments, a 5% surcharge applies across all price bands. This increased from 3% to 5% in October 2024 following the Autumn Budget.
Can you avoid paying stamp duty on investment property?
There are a small number of stamp duty exemptions that may apply to residential property purchases. For example, first-time buyers are exempt from paying stamp duty on properties up to £425,000 (reducing to £300,000 from April 2025).
However, if you are buying additional investment properties, you will likely need to pay stamp duty. Even the lowest stamp duty price band, which is usually charged at 0%, is subject to the 5% surcharge if you already own a home.
Investors should note that tax evasion is illegal, and stamp duty mitigation schemes – schemes that abuse loopholes in SDLT legislation to avoid stamp duty fees – are incredibly risky. If you use such a scheme, you may be charged a penalty fee and interest on top of the stamp duty owed.
Strategies to minimise the impact of stamp duty for investors
While you may not be able to avoid paying stamp duty on an investment property, it may be possible to reduce your stamp duty liability within the bounds of the law. Additionally, by making tactical investment decisions, you could also improve your overall ROI, which would help offset SDLT fees in the long term.
1. Weigh property prices against potential returns
SDLT is calculated as a percentage of the purchase price, and rates increase with each price band. In other words, the more you pay, the more stamp duty you will be liable for. Therefore, to pay less stamp duty, investors can simply buy a cheaper property.
However, choosing a less expensive property purely to pay less tax may not always be the wisest decision. It’s important to carefully weigh up any savings at the point of purchase against future rental yields and capital growth.
Cheaper property prices may indicate a lack of rental demand, poor forecasted market growth in the area, or maintenance issues that may put off potential tenants or be costly to fix. This may mean that despite paying less for the property (and therefore less stamp duty), your investment may generate smaller returns, resulting in less overall profit.
On the other hand, a more upscale apartment in central Birmingham or Manchester may present a better investment opportunity overall. The projected returns on a high-demand property will likely cover the difference for the increased SDLT.
2. Buy off-plan
New builds, particularly purpose-built buy-to-let properties, generally offer better projected investment returns than older properties. Not only do they require less immediate maintenance, but they also command higher rental prices – especially luxury developments in high-demand city centre locations.
Naturally, such properties are more expensive and subject to higher SDLT rates. However, you may be able to secure a lower price by buying off-plan. This means completing the purchase while the development is still in the planning or construction phase.
At Select Property, our exclusive developments are available to buy off plan. Take a look at our latest addition to our property portfolio – Edition Birmingham. The first of its kind – Edition is leading the way for prestige luxury living in Birmingham. With 14,000sqft dedicated solely to luxury amenities, Edition is a true original and an unmissable investment opportunity.
Developers are often willing to sell off-plan properties for significantly less than move-in-ready new builds of equivalent specifications. As SDLT is calculated based on the actual amount paid, rather than the property’s market value, this presents a great opportunity to minimise stamp duty liability.
Investors can typically buy at the lowest possible prices 2-3 years prior to the anticipated completion date, often with attractive payment plans available.
3. Buy six or more properties in one transaction
If you are looking to build a property portfolio quickly, one option to consider is to purchase six or more properties in one transaction. While this will require having sufficient investment capital to buy multiple homes, it may be a highly effective way to minimise the stamp duty you pay on them.
This is because a single purchase of six or more properties is categorised as a non-residential purchase. As a result, it is not subject to residential SDLT rates, or the higher rates normally chargeable on additional dwellings. Instead, the rates for non-residential property apply.
The amount of tax payable will depend on the purchase price and whether the properties are freehold or leasehold. However, in most cases, this approach should result in a substantial stamp duty discount compared to buying each home separately. The highest rate of non-residential SDLT is currently 5%, while the highest residential rate is 17%.
A benefit for international investors, is that when purchasing six or more properties in one transaction, the purchase will be classed as non-residential, and therefore charged at the SDLT non-residential rate. This also qualifies the transaction to be exempt from the 2% international buyer surcharge, making this an excellent option for global investors.
Managing your investment properties will also be much easier if you own multiple within the same development.
4. Take a long-term approach to property investment
Finally, taking a medium- to long-term view of property investment is a reliable way to mitigate the cost of stamp duty over time.
The previously popular route of buying older homes, refurbishing them, and selling them quickly (the ‘buy and flip’ approach) is no longer considered a particularly lucrative investment strategy, with rising labour and material costs. When factoring in the recent stamp duty increase, this short-term view becomes even less viable.
But purchasing a buy-to-let home and collecting rental income while you wait for the property to appreciate in value is a superior choice in regards to ROI. By identifying the most lucrative long-term opportunities, your ROI will more than make up for any initial SDLT fees.
At Select Property, we have been delivering high-yielding investment properties across the key UK cities since 2004. We can help you mitigate the impact of stamp duty by matching you with lucrative investment opportunities tailored to your financial goals. Contact us today and find out more about the exciting developments we have available in top UK cities such as Manchester and Birmingham.
*Select Property does not provide tax, legal or accounting advice and recommends seeking private financial advice when investing in property. This material has been prepared for informational and educational purposes only.