Around 10% of Brits currently own a second property, such as buy-to-lets and holiday homes. If you’re thinking of buying a second home in the UK, there’s a lot to consider.
You’ll need to consider the impact of the additional stamp duty land tax, as well as these questions:
- Why do you want a second property?
- What extra costs are involved in a second home?
- What are the tax implications of buying a second home?
- Will you be renting out the property?
- Can you buy your second home through 'let-to-buy'?
- Are you buying the property to develop it?
- Are you buying a holiday home?
- Are you helping a family member?
- Will the home also be used for business purposes?
All these circumstances will influence the decisions you make when you buy your second property.
We’ll now address these questions in more detail.
Why do you want a second property?
There are many reasons why people buy more than one home. Maybe you work in a city but prefer country life, and want more space and fresh air at the weekends but a local place during the week.
Equally, your job may take you to different parts of the country. A second home may also serve as a holiday home, or can be rented out as a source of additional income.
Alternatively, you may have a large sum of money to invest in property so you can get some practical use from it while it hopefully increases in value.
A second home purchase may be short-term if you want to make money from property development.
What are the additional costs of buying a second property?
The property that you consider your main home is known as your primary residence or principal private residence, if you want to get technical.
Any additional property you own, including buy-to-let property, is known as a secondary residence.
If you are going to get a second mortgage, you’ll usually need at least a 25% deposit.
When you buy any property, you have to pay stamp duty land tax on the purchase.
When you buy a secondary residence, you have to pay an extra 3% surcharge on top of the usual stamp duty. Unlike first home stamp duty, it includes properties under the value of £250,000.
You’ll have to pay a higher stamp duty of 8% for properties valued between £250,001 and £925,000, 13% for properties valued at £925,001-£1.5 million or 15% for a property valued over this amount.
In Wales and Scotland, there are different rates on additional properties.
Capital gains tax (CGT)
A secondary residence is also subject to capital gains tax (CGT) when you sell it, if its value has increased since you bought it.
Only the growth in value is taxed, and your annual CGT allowance should reduce the taxable amount.
If you’re selling, a financial adviser may be able to help you work out how much you need to pay.
You’ll usually pay council tax on any second homes, which includes furnished homes with no one living there.
You may be eligible for a discount, so it’s worth getting in touch with your local council to check.
Utility bills, maintenance and renovation costs
What are the tax implications of buying a second home?
You’ll have to pay income tax on your second property if you choose to rent it out.
The amount of tax you’ll pay depends on your profits and tax band – and you should be wary that your rental income could push you into a higher tax band, so you’ll pay more.
You can deduct expenses from letting out your property, such as estate agent fees, maintenance and repairs and accountant fees.
How do I let out my second home?
Even if you didn’t have buy-to-let in mind, you may decide to let your second home so it generates income rather than sitting empty.
This can also be a good way to keep the property maintained, if you pick responsible tenants.
However, to do this, you’ll need to remortgage the secondary residence to a buy-to-let mortgage, as you can’t let a property on an ordinary homebuyer’s mortgage.
What is ‘let-to-buy’?
This essentially means letting out the property you currently live in so that you can buy a new home. You might try this if you’re struggling to sell your home, or if you want to keep it as an investment.
Another reason for let-to-buy may be to free up cash for a deposit on a secondary residence.
Assuming you own enough equity, you could remortgage your current home to release some of that value as a cash sum.
Can I make money as a property developer?
One popular reason for buying a secondary property is to profit from a strong housing market.
During a property boom,â¯this can be lucrative, but it is high risk – if theâ¯market stalls or crashes (as it has done in the past) you can lose a lot of money and be left with a half-finished home you can’t sell.
If you’re tempted by this route, aim to have a safety margin to cushion you if prices don’t rise as you hoped, or if the property takes longer than expected to sell.
Also factor in renovation costs, and remember that estimated costs usually rise considerably. But if you’re a DIY fan and enjoy a big project, talk to a mortgage adviser about how to make it happen.
Can I use my holiday home as an AirBnB or similar holiday let?
Buying a property for holidays has many attractions, if you love a place enough to go there every year. And when you’re not using it yourself, you can rent it out to other holidaymakers.
The good news is you may not need a buy-to-let mortgage as it can be a normal residential mortgage if you only let it for a few weeks a year.
If you plan to let your property more regularly, you will need a holiday let mortgage.
Renting out your holiday home may have tax implications, so discuss this with a financial adviser.
On the plus side, you may be able to claim certain allowances and reliefs if you let out the home for more than 105 days a year.
Some people choose a purpose-built property to save on tax but they may not have planning permission to be residential all year round, which may affect your future if you want to move there.
I’m helping a family member onto the property ladder
If you’re a homeowner and are buying a home with a relative, this is counted as a secondary residence and you’ll have to pay the stamp duty surcharge.
For alternative options on how to help your children buy their first home, see our article on the bank of mum and dad.
I’m buying a second property to start a business
If the property you’re buying is partly for business purposes and partly residential, then it will be classed as a mixed-use property.
A mixed-use property may mean lower stamp duty, but you will have to pay other taxes.
Having second thoughts?
A good rule of thumb is: if you took care buying your main home, then you should extra care when buying a secondary residence.
You should start by finding a mortgage broker who specialises in this area. Unbiased can quickly connect you with a mortgage adviser who can help you on your property buying journey.