National Conveyancing week: Considerations for buying a Second Home

Buying a second home?

If you’re considering buying a second property either as a holiday home or as an investment buy-to-let, there are additional costs that you will need to consider that will apply over and above your usual conveyancing costs.

1. Stamp Duty Land Tax (“SDLT”)

Since 1 April 2016 the government has implemented a higher rate of SDLT for anyone buying additional residential property

The additional rate will apply to any additional property purchase over the value of £40,000 and the percentage payable will depend on the purchase price as follows:

*So, for example, someone purchasing a buy-to-let at a price of £300,000 would pay 3% on the value up to £250,000 (£7,500) plus 8% on the value above £250,001 up to £300,000 (£4,000) so a total SDLT liability of £11,500.

What about if I’m buying a second home for a family member, such as my son or daughter, to help them get on the property ladder? If you are listed on the title deeds for the property, this will be viewed as an additional property for SDLT purposes and the additional rate will therefore apply.
If you are considering helping a family member purchase a property, we would recommend speaking to an Independent Financial Advisor who can advise you on other, more tax efficient ways of contributing.

What if I purchase an additional property that will eventually replace my main residence? The implementation of the higher rate of SDLT was also accompanied by the potential to reclaim the additional surcharge payable if the previous main residence is later sold.
If the previous main residence is sold within three years of the purchase of the ‘new’ property there may be the right to reclaim the surcharge. If you think you may be entitled to a reclaim on SDLT, we can put you in touch with one of our recommended SDLT experts for a thorough breakdown of advice.

2. Capital Gains Tax (“CGT”)

Any additional property or secondary residences will also be subject to CGT on disposal, but only if its value has increased since it was purchased.

CGT of 18% (or 28% if you are a higher or additional rate taxpayer) is payable on any gain from residential property – usually the difference between the purchase price and the sale price. However, you may be able to deduct your tax-free allowance (£12,300 for 2021-22) and if the property is jointly owned, you will only be liable for the share that you own. Costs including estate agent fees, solicitor fees and cost of improvements may also be deductible, and your financial advisor/accountant will be able to provide more detailed advice on what can or cannot be included in these deductions.

You must report and pay any CGT due on within 60 days** of selling the property.

**time frame applies to properties sold on or after 27 October 2021.

To discuss how we can support your residential property needs, contact Alicia Stanford-Shard or a member of the BPE Residential Property team on 01242 224433.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.