Top tax tips for second home buyers

How to minimise the tax you pay on your second home
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Tax tips for second home owners

Limiting the tax involved in buying a second home

Owning a second home can be a costly venture: as well as buying the property, furnishing it, protecting it with buildings and contents insurance, paying for bills and utilities, travelling expenses to and from it, and maintaining it to a good standard of repair, you also have to consider the various taxes due.

That said, there are still a few measures we can take to minimise the how much you pay in tax by fully understanding how stamp duty land tax (SDLT), council tax, and capital gains and income tax operate in respect of second homes.

Stamp duty on additional homes

Since 1 April 2016, second propoerties have been subject SDLT rates that are 3% above those for main residences. 

Band Additional propoerty SDLT rate
£0-£125,000 3%
£125,001-£250,000 5%
£250,001-£925,000 8%
£925,001-£1.5m 13%
£1.5m+ 15%

Each rate charged on the portion of the value of the property that falls into each band, so if you buy a second home for £200,000, you pay 3% SDLT on the first £125,000 and 5% on the remaining £75,000.

No stamp duty is payable on properties costing under £40,000.

You can minimise the amount of SDLT you pay by bearing these bands in mind when setting your budget for buying your second home, and when negotiating its purchase price.


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Council tax discounts on unoccupied houses

Council tax concessions for second homes vary from council to council so you need to check the rules in your area. 

If your second home is unfurnished during the first six months you own it, and no one is living there, you won't usually have to pay council tax for it. Once it's furnished, though, you may be billed for council tax at 100% of the valuation tariff, so you should contact the local council as soon as possible to let them know 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, but some councils actually charge more than the standard rate if the second home remains empty for longer than six months. 

Make sure you're insured

If your second property isn't occupied on a permanent basis, make sure that you have adequate unoccupied buildings insurance, as empty houses are at a much higher risk than your primary residence.

Capital gains and income tax

Selling your second home for a profit can leave you exposed to capital gains tax. You have two years after purchasing your second home to let the relevant 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 need to have lived in your second home for at least seven months after nominating it as your primary home.

Letting income is as taxable as your employment income, so you need to declare any rent money you earn from letting out your second home on an HMRC tax return. Letting your second home as a holiday rental also has insurance implications, so it's worth calculating the minimum amount of time each year you need to let the home out for to justify the additional costs.

Second home insurance

No matter what purpose you put your second home to, you will need to make sure it is insured. Find out more about the various types of home insurance for second homes available from HomeProtect here:

Perfect cover for our second home and very good value. - Trustpilot Tuesday, 17 January 2017

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