Investing in your property portfolio? Don’t get caught out by Stamp Duty Land Tax

The Government has announced a rise in Stamp Duty Land Tax (SDLT) on Additional Dwellings from three per cent to five per cent.

Additionally, companies buying dwellings for over £500,000 are facing an increased flat rate of 17 per cent, up from 15 per cent in the same time frame, which is set to push up the cost of commercial purchases of high-value properties substantially.

This additional rate is due when you buy a residential property that is not your main residence, whether as a second home, a buy-to-let property or part of a corporate portfolio.

The Government hopes that this will free up the market for people looking to buy their primary home by making it less financially appealing to invest in additional properties.

What does this mean for adding to your portfolio?

SDLT and investment

Residential property is a popular investment option for individual landlords and commercial private housing providers.

However, the rise in SDLT on Additional Dwellings will make it more expensive to purchase these properties, making higher-value residences particularly costly.

It is likely that we will see a decrease in the number of individuals investing in residential properties as costs become prohibitively high compared to the cost to those buying their main home.

For commercial enterprises, it will depend entirely on whether the risk of additional costs is outweighed by the return on investment (ROI) on the property in the long term, as well as available cash reserves to meet higher initial costs.

Mitigating these costs

The Chancellor brought in new legislation around SDLT with immediate effect, giving investors little time to plan and no opportunity to expedite purchases.

However, you can still take steps to reduce the overall burden, including:

• Engaging in thorough due diligence of the property’s classification and use.
• Identifying any potential issues such as necessary works that could increase costs.
• Carefully negotiate the cost of the property to potentially cut SDLT or move into a lower band.
• Acquire mixed-use properties with residential and commercial elements, as this could incur a lower rate of SDLT.
• Purchase via a limited company, as this can result in a reduced liability, particularly when transferring properties to a connected company.

We can also help you to minimise the cost of the sales process with our conveyancing experts and our diverse experience with contracts, searches and surveyors.

For advice on residential property purchases and SDLT, please contact our team.