The Tax Implications Of Buying A Second Home

Around the UK, in popular locations, over 10% of properties are second homes used for holidays by the families who own them. This trend has contributed to an already heated property market ...

The number of people staying in a second home for more than 30 days per year has risen from 426,000 in 2011 to 447,000, according to ONS data. Most stay relatively close to their primary residence, with 40% travelling less than 60 miles and 78% staying within 100 miles.

Owning a second home can also generate a significant income if rented out, but the costs of upkeep and maintenance can be substantial. Additional costs include:

- Council tax, unless the property is rented out for at least 70 days each year
- Maintenance, repairs, decorating, and furniture costs
- Utility bills
- Cleaning and gardening costs
- Income tax on rental income
- Administrative costs, such as accountant and letting agent fees

Second homes classified as furnished holiday lets have more lenient tax rules, but these only apply if the property is commercially rented to the public for at least 105 days in the tax year.

You may be liable for such things as Capital Gains Tax which starts at 18% and rises to 28% for higher-rate taxpayers. Although the current annual exemption is £6,000 this is reduced to £3,000 from April 2024. In addition, Inheritance Tax and Stamp Duty may be due.

I really have to warn you that while owning a second home may seem like a dream, it can have significant impacts on local communities by driving up property prices. Also remember that maintaining and renting out a second home can be like a part-time job, requiring a lot of time each week in cleaning, maintenance and preparation for the next guests.

"For many, it may be more cost-effective and less stressful to rent a holiday home for a few weeks a year rather than buying one!"

This also allows for more flexibility in exploring different locations. If considering using pension funds to buy a holiday home, it's crucial to seek advice, as pensions receive extremely tax-favourable treatment and are completely free from Inheritance Tax.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.