What is the stamp duty on properties? Can I avoid the 3% stamp duty surcharge?

Reza Hooda

You might be asking yourself, how much stamp duty? A purchase of a second residential property is now subject to a 3% stamp duty surcharge. That is the case whether you buy in your own name OR even via a company you own.

Stamp duty for second home - Is there any way round this?

Unfortunately not for single buy to let investments. However, there are some property type purchases and transactions that don't attract the 3% surcharge.

In the main these are listed below:

Commercial property
Mixed use property

Whilst the first is probably obvious to most, commercial property is subject to 'non-residential' rates of stamp duty and does not suffer from the 3% surcharge.

The non-residential rates are lower than the rates applying to residential property - for example going up to a maximum of 5% rather than 15% for residential.

The summary of rates are shown below:

Residential property - Stamp duty second home calculator

Commercial (non-residential) property

A £300,000 residential property would attract stamp duty of £14,000 whilst a commercial property of the same value would attract stamp duty of only £4,500. Clearly the stamp duty regime favours investment in commercial property over residential.

So what else can be treated as non-residential? - Stamp duty tax on property

Something perhaps less well known is that mixed use properties i.e say commercial on the ground floor e.g. retail unit and flats above are treated as 'non-residential' properties. As such they attract stamp duty at the lower commercial rates.

Whilst stamp duty tax on property alone should not be the driver of investing in mixed use properties but it is worth knowing as part of an overall investment strategy.

With the permitted development planning rules, many investors/developers have taken advantage of buying office blocks above retail units and converting the offices to flats.

Mixed use properties do therefore find their way to the market and can offer attractive yields.

What is Multiple Dwellings Relief?

Actually there is something called Multiple Dwellings Relief (MDR). This is a handy relief where you are buying more than than one property as part of a linked transaction.

For example, you are buying a building which contains 4 x 1 bedroom flats for £500,000. The default SDLT position would give rise to stamp duty of £30,000.

However, if you took advantage of Multiple Dwellings Relief then your stamp duty can be worked out by reference to the deemed average value of each flat i.e £500,000 / 4 units = £125,000.

There is no stamp duty on property values of up to £125,000 however a minimum of 1% must apply when you claim the relief and the 3% surcharge still applies too.

That said, the stamp duty after claiming MDR would be just £20,000 - a saving of £10,000.

Non residential rates of stamp duty

If you are buying more than 6 properties as part of the same transaction then you can actually qualify for the non residential rates of stamp duty which as we saw earlier are a LOT less.

In this case, you still have the option of claiming MDR (as you are buying more than one property as part of the transaction) so you can work out what gives you the better result and elect to pay the lower amount.

So, although no easy way to get round the 3% surcharge the above has hopefully provided some potential alternatives to lower your stamp duty if it lines up with your investment strategy.

If you have any other questions such as the ones listed below, don't hesitate to get in touch!

Hope that was useful :-)

Reza