People and property developers in the UK often buy homes or land as a means of investment. While this can be a great way to attain assets, it can be extremely expensive – particularly due to stamp duty rates for investment properties. However, there are luckily exemptions and possible loopholes which may apply to those that have bought investment properties. 

In this guide, we explore what is considered an ‘investment property’ as well as how people may be eligible for a stamp duty rebate or relief and how this can be obtained. 

What Is Considered an ‘Investment Property’? 

Investing in property is a great way of creating another source of disposable income. However, investing in property can be expensive both during purchasing and once the purchase is completed (thanks to Stamp Duty and other taxes). But, what exactly is considered an investment property by HMRC?

Unfortunately, the rules aren’t set out in black or white. So, it might be difficult to understand whether or not a property is considered an investment property. Generally speaking, however, investment properties are those which are bought to generate income or not used for ‘residential’ use (or as a main home), such as a shop. 

Below, find some common examples of investment properties in the UK:

House in Multiple Occupation  

A House in Multiple Occupation (HMO) is a property which is rented out by at least 3 people that are not from the same ‘household’. However, they share facilities such as a bathroom or kitchen. People often purchase properties and then rent them out as HMOs, such as university house shares. 

Commercial Property 

A commercial property in the UK is all properties or land which are used for business purposes or for making a profit. Generally, commercial properties are treated differently to residential properties. Examples of a commercial include, but are not limited to: offices, restaurants, cafes, sport facilities, medical centres, warehouses and shops. 

Multiple Dwellings 

Multiple dwellings are where an individual or company may buy several properties. In such instances, buyers may be entitled to a specific stamp duty relief known as Multiple Dwellings Relief (MDR). 

This relief is applicable if you buy multiple dwellings (a flat, house or place of residence) in one or a linked transaction. This can be applied for during the purchase process on behalf of a conveyancer. However, if you believe you have overpaid in stamp duty for multiple dwellings you may be entitled to a refund. 

 

Stamp Duty Rates for Investment Properties 

Stamp duty can be divided into two categories: stamp duty for residential properties and non-residential. According to HMRC, the below qualify as non-residential properties:

  • Commercial properties
  • Property not suitable to live in (such as uninhabitable properties) 
  • Forests
  • Agricultural land 
  • Multiple dwellings 
  • Any other land and/or property not part of a residential dwelling garden or grounds 

However, there are also ‘mixed’ properties. For instance, a flat which may be connected to a commercial property, such as a shop. 

Find below the stamp duty rates which apply to investment properties: 

Normal Stamp Duty Rates (for residential properties) Non-Residential Stamp Duty Rates (or investment properties)*
  • 0% on the value up to £250,000 
  • 5% on the value between £250,001 – £925,000
  • 10% on the value from £925,001 – £1.5 million
  • 12% on anything above the value of £1.5 million 
  • 0% on the value up to £150,000 
  • 2% on the value up to £250,000
  • 5% on any value above £250,000

* The rules surrounding stamp duty rates for investment properties vary depending on who the purchaser is, whether they own any previous property and what type of property it constitutes to. 

So, for example, if you buy a freehold commercial property and it is worth £400,00 then you will pay:

  • 0% on the first £150,000 = 0 
  • 2% on the next £100,000 = £2,000 
  • 5% on the remaining £150,000 = £7,500 

In total, £9,500 would be owed in stamp duty. 

Meanwhile, if you purchase a new leasehold (a property not owned outright by you) then you would be expected to pay stamp duty on both the purchase price of the lease (by using the rates above) as well as on the value of the annual rent you pay. These are calculated separately then added together. 

You could use an online stamp duty calculator through the government website to find out how much stamp duty you might owe. 

Is Stamp Duty Deductible on an Investment Property?

The rules set out by HMRC can be confusing for many, and may be why so much money is overpaid each year in stamp duty. However, below you can find some of the exemptions which may apply to you if you buy an investment property. 

Multiple Dwellings – 

If 2 or more dwellings are purchased in a ‘single or linked’ transaction then Multiple Dwellings Relief (MDR) can be claimed. If 6 or more are purchased in a single transaction then the purchaser can decide whether to pay the non-residential rates of SDLT or claim MDR and pay the higher rates. 

You can find out more about the current rules and rates that apply to multiple dwellings on the government website. 

Buy-to-let – 

People purchase buy-to-let properties as a form of long-term investment. In most cases, people purchasing buy-to-let properties will already own other property, so higher stamp duty rates will apply. 

What’s more, first-time buyers who are usually exempt from paying stamp duty up to a certain threshold will not be allowed to do so when purchasing property to then rent it out. 

However, if you only own one property and are considering selling it and the buy-to-let property will be your only main residence then you may be entitled to a stamp duty refund. 

How Can I Claim Back Stamp Duty on an Investment Property?

Because stamp duty has many rules, and the regulations surrounding refunds for investment properties isn’t clear-cut then it is best to seek advice from a stamp duty rebate expert if you’re wanting to claim back stamp duty. While a conveyancer or estate agent might be well-informed about stamp duty, a stamp duty expert will be up-to-date with all of the current rules surrounding a stamp duty refund. 

Get in touch with Stamp Duty Rebate today to find out whether or not you might be owed money from HMRC.