Second home

Top Tax Tips for Second Home Buyers

Second home ownership is a costly venture, however, getting to know good tax tips can reduce unnecessary expenditure. Getting to know what tax is involved can help too. It is important to be aware of stamp duty land tax, council tax, and capital gains and income tax.

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Understanding the tax involved when buying a second home

There is no denying that second home ownership can be a costly experience. In addition to buying the property, furnishing it, protecting it with buildings and contents insurance, paying for bills and utilities, travelling expenses to and from the property and maintaining it to a good standard of repair, you also have to consider the tax.

One of the many prices we pay, in order to enjoy the high quality of life available in the UK, is tax. We pay it on everything. Tax on petrol, tax on value, tax on earnings, tax on savings, tax on fun, then tax upon tax upon tax until the day we die – then our heirs are subjected to an inheritance tax, if we have anything left worth leaving them by then!

But though it might seem limitless, there are still a few measures we can take to try and contain how much the taxman ultimately takes from us, particularly when it comes to owning a second home.

Stamp duty land tax rates

In 2009/2010, buyers were lucky enough to enjoy a "stamp duty holiday" on buying properties worth between £125,000 and £175,000, saving buyers a maximum of £1,750. Sadly, this holiday ended there, with a return trip to tax-freedom seeming unlikely.

Then, in 2010 the Government introduced a new stamp duty holiday, this time for homes up to £250,000, which continued until March 2012. Don't celebrate just yet though, as this time the holiday was an equivalent of an 18-30 excursion, only allowing first-time buyers the chance to bask in the sunshine-benefit of partial tax-exemption!

Since then, the Stamp Duty regulations have changed again, on 1st April 2016 a new lowest rate of 3% Stamp Duty was introduced on even the very smallest, cheapest second properties.

Stamp duty surcharge on second homes:

  • £0 and £125,000 now pay 3% Stamp Duty
  • £125,001 and £250,000 now pay 5% Stamp Duty
  • £250,001 and £925,000 now pay 8% Stamp Duty
  • £925,001 and £1.5m now pay 13% Stamp Duty 
  • £1.5m and above now pay 15% Stamp Duty

*Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.

Council tax discounts on unoccupied houses

Owning a second home may make you liable for paying council tax on both properties, and will almost certainly mean that you have to pay it on your primary residence. During the first six months of owning your second home, assuming nobody is living there and it is unfurnished, you will not usually have to pay council tax on it. Once furnished, you may have to start paying council tax at 100% of the valuation tariff, so you should contact the local council as soon as possible to inform them that the property is a second home.

Councils may offer you a discount of up to 50% on second homes where no one is occupying them on a permanent basis. If your second property is not occupied on a permanent basis, you must make sure that you have adequate unoccupied buildings insurance, as it is at a much higher risk than your primary residence.

Note that most councils will charge up to 50% more council tax if the second home remains empty for longer than six months.

Capital gains and income tax

Selling your second home on for a profit can leave you exposed to capital gains tax. You have two years after purchasing your second home to let local councils know which of your homes is your main residence. Since capital gains is not applicable to a home that has been your primary residence, if you want to avoid the capital gains tax you will need to spend at least seven months living in your second home after nominating it as your primary home.

Letting income is as taxable as your employment income, so if renting out your second home, you need to declare any rent money you have coming in. Not declaring your net profit and expenditure on your rental property will likely incur the wrath of HMRC. If you are renting out a single room in your primary residence, whether it be your first or second home, you are entitled to earn up to £7,500 if you apply to the Government sponsored Rent a Room Scheme.

Second home insurance

No matter what purpose you put your second home to, you will need to make sure it is insured. Whether you need unoccupied property protection, landlords cover or holiday home insurance, HomeProtect can provide a policy suited to your needs. We specialise in providing competitive online quotes for all types of second house insurance needs.

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