Stamp Duty survival guide for buy-to-let landlords

Understanding the new SDLT rates

In October 2024, the Chancellor announced a 5% additional rate of Stamp Duty on additional property purchases. This was an increase from the previous surcharge of 3%.

The 5% surcharge automatically applies to both individuals and limited companies when purchasing residential property for buy-to-let.

What does this mean in real terms?

• Before the budget, purchasing a property incurred a 3% SDLT. So, a £300,000 property would incur a SDLT of £11,500.

• Now the same property will attract a 5% charge, worth £17,500.

But the costs don’t stop there.

A new, lower threshold for residential properties was proposed by the Conservative government. This proposed policy that will be carried through by the Labour government. It now means the threshold will drop from £250,000 to £125,000 from April 1st 2025.

These changes drastically impact the affordability of investments, necessitating a reassessment of financial strategies.

Five strategies to survive the impact of SDLT costs

We are already speaking to landlords who are taking a mix of steps to mitigate their exposure.

Viability of sale

The first options are based on cash flow and viability of continuing with a sale.

Strategy 1: Renegotiating Property Deals

Many investors, who had purchases lined up before the Budget are already renegotiating contracts to offset the unexpected rise in SDLT costs.

For properties under negotiation, investors are requesting a price reduction, often successfully as it ensures the sale still happens. In effect, investors are asking to share SDLT the burden with sellers.

Strategy 2: Withdrawing from high-cost deals

In some cases, the increased costs are forcing investors to withdraw from sales altogether. For anyone new to the market, this potentially presents an opportunity to negotiate on properties where the sale has fallen through.

Purchase vehicles and portfolio reviews

The second set of options are based on the vehicle for purchase and reviewing the types of properties that will go into a portfolio.

Strategy 3: Consideration for using limited company structures

Purchasing property through a limited company offers long-term tax advantages including:

• Inheritance and estate planning: Owning property via a company provides a more tax-efficient means of passing on a legacy and managing the inheritance tax burden.

• Income tax efficiency: Limited companies offer flexible ways to draw an income in salary and dividends, which can result in annual savings on income tax. This a longer-term way to offset the associated SDLT on investments.

• Access to unique reliefs: Certain SDLT reliefs are available exclusively for limited companies.

Strategy 4: Switch to buy commercial properties

Commercial properties such as shops and offices are subject to different SDLT rules. SDLT is nil for purchases under £150,000, 2% for £150-000 to £250,000 and capped at 5% for those over £250,000.

Many investors are now switching to buy residential properties that come with retail units to take advantage of this difference in STDL.

Strategy 5: Exploring SDLT reliefs

There are several reliefs that could be used to offset the costs. These are often little known and overlooked. The savvier investors are working with Stamp Duty specialists to conduct forensic reviews of their impending transactions to identify where a relief could be applied.

Let’s look at some of these options in more detail.

Options for switching to commercial property

Commercial property transactions incur significantly lower SDLT rates compared to residential ones:

• Under £150,000: No SDLT applies.

• £150,000–£250,000: Tax is charged at 2%.

• Above £250,000: Tax is capped at 5%.

Private landlords with retail properties on high streets are struggling to find tenants. Council properties, former police stations, and post offices are also examples of publicly held properties that are going on the market.

Rather than have an empty building, there’s now growing interest in selling the property to investors and developers.

Savvy investors are buying and converting these properties to wholly residential properties using existing planning applications and permitted development rules.

Houses of multiple occupation (HMO) are a popular conversion choice as they yield high returns and add considerable value to the property.

As SDLT is only applicable on the property type at the point of purchase, this approach also maximises profit whilst also avoiding the risk of extra SDLT charges post-conversion.

It’s worth noting, however, that some commercial properties are registered for VAT. If this is the case, you need to add 20% to purchase calculations.

SDLT reliefs and advantages of buying direct from a developer

Several reliefs are available for specific transaction types, particularly for property traders (typically limited companies):

Formerly occupied properties: Relief applies to residential dwellings previously occupied by the seller (e.g. an executor sale following a death).

Relocation circumstances: If the seller is relocating for work, a relief might apply.

Chain break assistance: Property traders stepping in to rescue broken property chains, which happens when a sale falls through, can benefit from SDLT exemptions.

Purchases from developers: One of the most interesting options is to buy directly from a housebuilder as SDLT would not apply at all. This applies whether you buy from a large national housebuilder or an independent one.

Buying derelict or uninhabitable properties: Properties deemed derelict or uninhabitable attract non-residential SDLT rates (ie those applied to commercial properties and capped at 5%).

To qualify:

• The property must have severe structural issues or require significant work to make it habitable.

• It might be subject to health risk such as asbestos.

• Whatever the state, it’s important to be able to document and prove it.

Beware of risks with reclaim agents

Some reclaim agents exploit HMRC’s “process now, review later” policy to apply for questionable SDLT reliefs on behalf of investors.

While this may seem appealing, investors risk future HMRC inquiries, potentially leading to penalties or clawbacks.

There have been several high-profile cases that have gone to tribunal and been dismissed. This should act as a warning to anyone thinking of using reliefs of this nature.

Bottom line, always seek guidance from qualified tax advisors to avoid pitfalls and ensure you are not exposed later down the line.

Summary

In summary, the five practical ways landlords can survive stamp duty changes, are:

Review current transactions

Evaluate ongoing deals to identify SDLT implications and potential renegotiation opportunities.

Consult professionals

Work with solicitors and tax advisors to explore eligible reliefs and ensure correct transaction classifications.

Choose the right purchase structure

Assess whether purchasing as an individual or through a limited company is more tax-efficient for your situation both in the short and long-term.

Diversify investment types

Consider commercial or mixed-use properties to benefit from lower SDLT rates.

Plan Strategically

Focus on maximizing returns through smart acquisitions, leveraging SDLT efficiencies, and identifying long-term growth opportunities.

Navigating SDLT requires proactive planning and a deep understanding of available options. By leveraging reliefs, adopting tax-efficient structures, and exploring the benefits of commercial property investments, landlords can mitigate the financial impact of SDLT and optimise their portfolios.

If you’re thinking of starting a buy-to-let business in 2025, then watch our Buy-to-Let Property masterclass, which provides everything you need to know about starting and running a tax-smart property company.