The SDLT rise: How it affects investment properties and second homes

Sarah Bradford looks at what the increase in the SDLT supplement will mean to those purchasing second and subsequent residential properties. 

Tax policy has long been used to drive behaviour, whether this is to encourage behaviours viewed as desirable, or to discourage those viewed as less desirable.  

In the current climate of housing shortages, a raft of tax and stamp duty changes in recent years have conspired to curtail the purchase of residential properties for use other than as a main home, such as buy-to-let properties, holiday lets and second homes. These include the restriction of interest rate relief for unincorporated landlords, changes to the capital gains tax (CGT) treatment of residential gains and the end of the favourable tax regime for furnished holiday lettings. This trend continued in the October 2024 Budget.  

Against expectations, the Chancellor chose not to raise the rate of CGT for residential property gains, opting instead to bring the standard rates in line with the residential rates. However, she did increase the stamp duty land tax (SDLT) supplement for second and subsequent residential properties. Arguably, the thinking here is to encourage investors and second-home owners to leave the market while the top residential CGT rate remains at 24% and to discourage those thinking of investing in residential property by making it more expensive to do so. 

Nature of SDLT 

Stamp duty land tax (SDLT) is payable on the chargeable consideration on land and property in England and Northern Ireland. It does not apply in Scotland and Wales. Land and buildings transaction tax is payable on land and property purchases in Scotland, whereas land and property purchases in Wales are liable to land transaction tax. 

In each case, the amount payable depends on the type of land and property and the chargeable consideration. Separate rates apply for residential land and property, and for non-residential land and property. Where the land and property is mixed, comprising both residential and non-residential elements, mixed rates apply. 

Residential property rates 

SDLT is payable on each slice of consideration where the cost exceeds the SDLT residential threshold. This is currently £250,000 but will revert to £125,000 from 1 April 2025. From that date, a separate rate will apply to the band of consideration from £125,000 to £250,000. 

The threshold for first-time buyers is higher. The first-time buyer threshold, which only applies where the purchase price is £625,000 or less, is currently £425,000. The threshold will revert to £300,000 from 1 April 2025, and the price cap will revert to £500,000 from the same date. 

For second and subsequent residential properties, a supplement is charged in addition to the residential rates where the chargeable consideration is more than £40,000. The supplement applies to the full amount of the consideration, not just the excess over £40,000. The supplement was 3% prior to 31 October 2024, but was increased to 5% from 31 October 2024.  

The reduction in the residential threshold from 1 April 2025 will increase the rate purchasers of residential properties pay on the slice from £125,000 to £250,000. 

The residential rates applying now and from 1 April 2025 are shown in the tables below. 

31 October 2024 to 31 March 2025 

First-time buyers buying a property costing no more than £625,000 pay nothing on the first £425,000 and 5% on the remainder. 

From 1 April 2025 

First-time buyers buying a property costing no more than £500,000 pay nothing on the first £300,000, and 5% on the remainder. 

Impact 

The impact of the increase in the supplement will depend on the price of the property. Where the completion date is on or after 1 April 2025, the reduction in the residential threshold will further increase the SDLT payable.  

The following case studies illustrate what the changes will mean for those investing in residential property. 

Case study 1: Timing is everything 

Anne is looking to purchase a flat for £300,000 as a buy-to-let investment. If the purchase completes before 1 April 2025, she will pay SDLT of £17,500. However, if the completion takes place on or after 1 April 2025, the SDLT liability will increase to £20,000. 

For comparison, had she completed the purchase before 31 October 2024, she would have paid SDLT of £11,500. 

The increase in the supplement increases the SDLT on an investment property costing £300,000 by £6,000. The reduction in the residential threshold from £250,000 to £150,000 from 1 April 2025 adds a further £2,500 to the bill. 

Case study 2: Early completion? 

Brian is looking at purchasing a holiday cottage for £600,000, which he plans to let out. If the purchase completes before 1 April 2025, he will pay SDLT of £47,500. However, if the purchase does not complete until on or after 1 April 2025, the SDLT bill will rise to £50,000. 

Had Brian purchased the cottage before 31 October 2024, he would have paid SDLT of £35,500. 

Case study 3: Not enough time 

Christine is looking to purchase an apartment in London for £1m as an investment and plans to let it out. If the purchase completes before 1 April 2025, she will pay SDLT of £91,250. However, if the completion does not take place until 1 April 2025 or later, she will pay SDLT of £93,750. 

Had Christine purchased the apartment before 31 October 2024, she would have paid SDLT of £71,250. 

The increase in the SDLT supplement hikes the SDLT payable on a second or subsequent residential property by 2% of the purchase price. The cut in the residential property threshold adds a further £2,500 to the bill from 1 April 2024. 

As the supplement increases took immediate effect on 31 October, investors had no opportunity to push the transaction through to beat the rise.  

Non-residential property 

For non-residential and mixed property land and property, SDLT is payable at the following rates. 

On a non-residential property costing £300,000, the SDLT liability is £4,500. This rises to £19,500 for a property costing £600,000, and to £39,500 for a property costing £1m. 

Practical tip 

Depending on the returns available, property investors could consider investing in commercial property rather than residential property, as the SDLT hit is considerably lower. Where an investment in a residential property is on the cards, completing before 1 April 2025 could save up to £2,500 in SDLT.