Are you looking at buying a second home, holiday home or investment property? There are some important things to know before buying a second home, all to do with the new extra levy on buying a second home. It has affected 19.5% of all transactions to the tune of £670 million – so clearly this is something you need to be taking into account.
So if you are thinking about buying a second home make sure you are prepared with Garrington’s take on the top things to know before buying a second home.
What is the levy on buying a second home?
The extra charges were introduced on 1st April 2016 to the Stamp Duty Land Tax (SDLT) – an extra 3% to be paid on additional homes.
So far 86,400 properties have been subject to the increase, that’s 19.5% of all transactions. A cool £670 million has been raised as a result.
Of sold properties under £250,000 24% were additional properties – that’s second homes, holiday homes and buy to let.
What else do you need to know before buying a second home?
Did you know that according to census data 165,000 people have holiday homes in the UK? Buying a second home could be for many different reasons. Some second homes are as investments, buy to let, for work or with children to help them get on the property ladder.
A couple who is married or in a civil partnership are counted as a unit, so a second home belonging to either couple would fall under the rules. Some circumstances have been anticipated, so couples who are in the process of divorcing but buy another home for one to live in are not charged. There is a 36 month period between purchases where a refund can be obtained if it is more an overlap between buying and selling primary homes, rather than a permanent second home. Which makes sense, but it is worth checking out all the rules.
Money issues to know before buying a second home
A lot of second homes are paid for by re-mortgaging the primary home. Deposits tend to be higher than are accepted for main residences. Or the second home might be a transition toward a retirement property, in which case the main property is likely to have very little or no mortgage remaining.
For parents wanting to help their adult children onto the property ladder there are implications too. They could have to pay the increased SDLT if their name goes on the deed. Second homes are also subject to capital gains tax when sold.
Last year there were 5% more sales completed in Q2/Q3 2016 compared to the previous year.
Letting out second homes or holiday homes has become increasingly popular and easy with services such as AirBnB but there are tax implications to this, so if that is something you are thinking about you should consult specialist advice.
If you would like impartial advice on how to make a successful purchase, please call Garrington for more information.