Learn about the key taxes for UK second homes, from SDLT to CGT, and discover tips for reducing your tax burden while making informed financial decisions.
Second homes are subject to different taxes when you buy, own and sell them. It is important to understand these for the purposes of informed decision making and effective financial planning.
When buying a second home, aside from the purchase price itself, one of the first significant costs you will encounter is the Stamp Duty Land Tax (SDLT). This tax applies to property purchases over a certain value and includes an additional surcharge for second homes.
If you purchase a second home for £400,000:
To accurately calculate SDLT for your second home purchase, you can use online tools such as the HMRC SDLT calculator.
Typically, your solicitor or conveyancer will handle the SDLT return and payment process on your behalf. They will calculate the amount of SDLT due, complete the necessary forms and submit both the payment and the return to HMRC.
Ensure that your solicitor or conveyancer has all the necessary information and funds to make the SDLT payment promptly.
After the SDLT payment is made, you will receive a confirmation receipt. Keep this receipt for your records, as it serves as proof of payment.
Certain reliefs and exemptions may apply, reducing the amount of SDLT payable. Ensure you discuss these with your solicitor or conveyancer.
If you are purchasing a new main residence while selling your old one, you will not have to pay the additional 3% SDLT surcharge. If your previous main residence is not sold on the date of your new purchase, you will be required to pay the higher rate. However, you can apply for a refund if the previous home is sold within 36 months.
Owning a property abroad counts towards the additional SDLT rate. For example, owning a holiday home in another country will mean you pay the higher rate on a new UK property.
HMRC treats married couples and civil partners as one unit. Therefore, if one partner already owns a property, the higher SDLT rate applies to the purchase of a second property by either partner.
Inheriting a property can also affect SDLT calculations. If you inherit more than 50% of a property, you may be liable for the additional 3% surcharge when buying another property.
Council tax is a local tax on domestic properties, which helps fund local services such as rubbish collection, policing, and street maintenance. Each property is placed in one of eight council tax bands (A to H) based on its value.
You will generally pay the full council tax rate for a second home. Additionally, many local councils charge a premium on second homes to discourage leaving properties empty. This premium can be up to 100% of the standard council tax rate, effectively doubling the amount payable.
Some councils provide discounts for unoccupied second homes, but these discounts are becoming less common. The amount of discount may vary based on whether the second home is furnished or unfurnished, with unfurnished properties generally receiving lower rates for a limited time. Additionally, properties utilized as holiday lets or rentals may qualify for business rates instead of council tax if they meet certain criteria, such as being available for short-term lets for at least 140 days per year.
To check the exact council tax rates and any applicable discounts, you should contact the local council where the property is located or visit their website.
If you rent out your second home, the rental income is subject to income tax. Here are the key points to remember:
When you sell a second home, any profit made is subject to CGT. Important aspects include:
CGT rates for residential property are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
Everyone has an annual CGT allowance (£3,000 for the 2024/25 tax year), which reduces the taxable gain.
CGT is calculated based on the difference between the purchase price (including costs) and the sale price (minus allowable expenses).
If your second home is used as a holiday let and meets specific criteria, it might be subject to business rates rather than council tax. In order to qualify for certain benefits, a property must meet specific criteria. Firstly, the property should be available for short-term lets for a minimum of 140 days per year. Additionally, it must be actually let out for at least 70 days in a year to meet the standards. Additionally, properties that qualify for business rates may also be eligible for small business rate relief, which can help reduce the overall tax burden.
Owning a second home in the UK involves various taxes that can significantly impact your finances. Understanding these taxes, from council tax and SDLT to income tax on rental income and CGT, is crucial for effective financial planning. Consulting a financial advisor or tax professional can provide greater insight into your specific situation. By understanding these points and planning accordingly, you can help optimise owning a second home is from a financial perspective.
A. Landlords can claim several tax reliefs on rental income. Allowable expenses include property repairs and maintenance, letting agent fees, legal and professional fees, buildings and contents insurance, utility bills if paid by the landlord, and ground rent and service charges. In addition, a tax credit for mortgage interest is available and now capped at 20%.
A. When you sell a second home, any profit made is subject to Capital Gains Tax (CGT). The rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Each individual has an annual CGT allowance (£3,000 for the 2024/25 tax year), which reduces the taxable gain. CGT is calculated based on the difference between the purchase price (including costs) and the sale price (minus allowable expenses).
A. If SDLT is not paid within 14 days of the completion date, HMRC will impose interest charges on the overdue amount. The interest rate for late payments is 7.75% per year. Additionally, penalties for late payment include an initial £100 penalty if late by up to three months and £200 if late by more than three months. Further penalties may apply for extended delays.
A. If your second home is used as a holiday let and meets specific criteria, it might be subject to business rates instead of council tax. To qualify, the property must be available for short-term lets for at least 140 days a year and actually let for at least 70 days a year. Properties qualifying for business rates may also be eligible for small business rate relief.
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