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 ...
Buying a second home is a dream for many, but there are tax implications!
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.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the tax implications of buying a second home, it may be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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