Alternatively, a second home may be necessary for work, or you may find yourself with more than one property via an inheritance. In a slow-moving property market, some people occasionally complete the purchase of a new home before they are able to sell their old property. Over the course of your lifetime the way you use the properties may change, for example if a holiday home becomes your main residence when you retire, and this could have unintended consequences.
‘The burden on people who own more than one home has certainly increased in recent years,’ agrees Paula Amer, Partner in the residential property team with QualitySolicitors Parkinson Wright. ‘Selling up can make sense for some, but ultimately it is a very personal decision. It can also raise additional issues connected to the sale of your main home, particularly with tax. So, it is important to get the right advice when planning any future actions, or if your main residence has changed over the years.’
Paula, highlights the key issues for anyone planning to switch, let or sell a second home (as opposed to an investment property).
How the regime for owners of second homes has changed
There have been several changes to the regulations which affect anyone owning a second home:
- purchase costs went up with the increase in stamp duty land tax on additional properties in 2016 and a further increase in 2024;
- recent changes allow local authorities to charge a council tax premium on second homes, which could see a council tax bill double, or even treble if the property is in Wales. Not all local authorities impose this additional tax, but many popular tourist hot spots are affected, for example, Cornwall and Pembrokeshire; and
- local authorities can also impose additional planning restrictions, and may, for example, require a person who wants to use a residential property as a second home to apply for planning permission, the grant of which is not automatic.
Main residence v second home
The council tax premium only applies to second properties and can vary depending on the local authority area. Some owners try to mitigate the cost by switching their main residence. However, the local authority will consider carefully whether any arrangement is genuine. So, this is usually only something worth considering if you find yourself spending most of your time now in your ‘second’ home.
It is a good idea to seek professional advice before making such a switch. Not only are the rules complicated, but they can also have unintended results. For example, if you are not careful, changing your main residence could save you council tax but increase your capital gains tax when you come to sell.
You should keep evidence of when your use of a property as a second home began. You can then show this to the council, or to prospective buyers who may want to use your property as a second home.
Second home v holiday let
Some homeowners offset the cost of a holiday home by letting their properties to other holiday makers. Holiday lets are treated differently from second homes in several ways. For example, business rates may apply instead of council tax and this can work out cheaper. To qualify as a holiday let, your property must meet certain criteria. In England, it would need to be available to let on the open market for at least 140 nights, and actually let for at least 70 nights, each year to qualify. In Wales, the requisite periods are longer.
If you, or your family, still use the property regularly for holidays, renting it out commercially for holiday lets could be an option. Alternatively, you may not use your property often but may intend to do so in the future, for example, when you retire. In that case, you could consider renting it out to a longer-term tenant. In either case, though, it is important to take independent expert advice.
Not only are the tax and legal requirements in this area complex, but they are also changing rapidly. For example, the last budget changed the special income tax treatment of furnished holiday lettings while the Renters’ Rights Bill, currently in Parliament, could affect your ability as a landlord to get your property back.
Gifting a property
Many second homes are enjoyed not only by their owners, but also by their extended families. You may, for example, use yours as somewhere to get together with your adult children for a break. You may even be thinking of passing the benefit of that property onto them. This can make good sense, relieving you of the day-to-day responsibilities of ownership. However, this will inevitably give rise to tax and legal issues. An early discussion with your conveyancer will help you clarify these, and the best way forward to avoid any costly mistakes.
Is it time to sell?
In many ways, selling a second home is just like selling any residential property, but with some additional things to consider.
As part of the conveyancing process, you will be expected to give the buyer certain information about the property. There is a set form for this, TA6. This is a type of questionnaire, which your conveyancer will pass on to the buyer’s conveyancer. It includes questions about boundaries and whether any part of the property (including the garden and any outbuildings) has ever flooded. Sometimes answering these questions, and any follow-up ones, can be difficult when you do not live there. However, it is important to be transparent. Giving misleading replies could result in the buyer seeking damages or even rescinding your contract. Your conveyancer can help you with the phrasing of your answers, or anything you are not sure about.
Selling a property remotely can be challenging practically. Choosing a reputable local agent, who can manage viewings, will help. However, you should also consider how to deal with routine maintenance issues, and your insurer’s requirements. Many policies will stipulate how often the property must be visited; you will need to comply with this to keep your property protected.
On a positive note, being chain-free, you should be well placed to aim for a relatively quick, smooth sale. Instructing the right estate agent and conveyancer will be key to achieving this.
Pay special consideration to tax aspects
Your second home is treated differently from your main residence for tax purposes.
For a start, you are likely to have to pay capital gains tax when you sell or gift it. Capital gains tax is based on the increase in the property’s value over your period of ownership. The rate of tax, 18 or 24 per cent depending on your other income, can result in a considerable sum becoming payable. You should be able to deduct the cost of any renovations from the calculation and use any period during which the property was your main home to reduce your liability. In some cases, you may be able to reduce your overall tax bill by making your second home your main residence, for example if you intend to downsize. However, it is important to be aware of, and follow, the relevant rules so that HMRC do not argue the arrangement is not genuine.
A second home is also treated differently for inheritance tax. It will form part of your estate, and if your assets reach a certain threshold (£350,000 or £500,000, if you are leaving your main residence on to your children or grandchildren), a charge may arise. The current rate of inheritance tax is 40 per cent. So, depending on your assets, the liability can be considerable. Ideally, therefore, any disposal of your second home should form part of your overall estate planning. While you may be able to reduce your liability through a lifetime gift to your children, there are traps for the unwary. For example, should you die within seven years of your gift, then, subject to taper relief, a charge may still arise. Other difficulties can occur if you retain some benefit in the property, for example, if you continue to holiday there yourself. A conveyancer, experienced in estate planning, can help find the best arrangement for your circumstances.
How we can help you
Decisions about a second home tend to be more complex than for a main residence, but talking things through with a trusted advisor, like your conveyancer, can help you see things objectively.
Our team is experienced in all aspects of conveyancing and we will take the time to understand your unique circumstances and your objectives.
For further information, please contact Paula Amer or a member of the residential property team on 01905 721600 or email worcester@parkinsonwright.co.uk
Offices in Worcester, Droitwich and Evesham.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.