Buying a second home – Q&A

by | Nov 23, 2021 | Blog Posts

Buying a second home

Shareen Ahmed, a trainee solicitor in our Conveyancing department took part in the Q&A on buying a second home with the Solicitor Chat on Twitter.

| How does the process of buying a second home differ to buying a main residence?

The process of buying a second home is generally the same as buying your main residence home. However, there are a few differences you will need to consider.

Firstly, you will be liable to pay higher stamp duty rates as this is your second home. This is generally 3% higher than the standard rates. In addition to this, you will be liable to additional taxes, such as Capital Gains Tax, when you come to sell your second home. You will also need to consider whether you will be renting your second home and if so will you require a tenancy agreement to be put in place?

| Is this the same process for buy-to-let properties?

Most of the process will be the same for buy-to-let properties as it is for normal residential properties. However, there are a few differences. Firstly, ensure your mortgage offer is a buy-to-let, and not a residential offer, as there may be restriction in the condition on letting the property. Buy-to-let mortgages tend to have more conditions on the offer and include a higher interest rate. You should always speak to your mortgage advisor to discuss the different options you may have.

You may need an Assured Shorthold tenancy agreement and Deed of Trust. If this is required, you will need to inform your solicitor from the outset, so they are able to prepare this for you. In some cases, you may not need to redraft the whole agreement if the property is being sold with the tenancy agreements. Stamp duty will be submitted in the same process; however you will be subject to higher stamp duty rates. Therefore, it is always best to check these using the stamp duty calculator in advance.

| What are the tax implications of buying a second home?

There are several tax implications when buying a second home. You will have to pay more stamp duty on your second home if it is worth more than £40,000. Always check the government stamp duty calculator to see the amount of stamp duty you are liable to pay. Your second home will be liable to capital gains tax when you come to sell it. If the value of the property increases beyond the capital gains allowance (£12,000 per person). You will need to pay up to 18% (or 28% if you are a higher or additional rate taxpayer) of the increase. Council tax will also be payable on your second home when you come to sell it. This must be payable within 60 days of selling your home.

| How does the process of buying a second home abroad differ?

Lenders in the UK now tend not to offer mortgages on properties abroad so you may need to look at options with overseas lenders. It is always important to consider the exchange rates when looking at mortgages with lenders abroad. The amount of deposit will also vary with each country and lender. Some countries will make it obligatory to have a will and so you may need to prepare this at the same time. This will be in addition to the standard conveyancing process, also leading to additional costs that you will need factor in when making this decision of buying a second home abroad. You may be liable to extra taxes depending on the country and their requirements.

It is important to bear in mind that most solicitors in England and Wales will not be qualified to deal with a house purchase abroad. It is important, therefore, to find a conveyancing lawyer local to your second home.

| What are the key factors you should be aware of when buying a second home?

There are several factors to be aware of, including:

  • Higher interest rates for mortgages and requirements for higher deposits. Lenders will generally want a deposit of 25% to be available.
  • Higher stamp duty rates will apply on second homes. You will need to typically pay 3% above the standard SDLT rates.
  • Capital gains tax will apply when you come to sell your second home, the amount you pay will depend on your tax bracket.

These are all additional costs you will need to consider when preparing your finances for purchase of a second home.

If you would like some more information about buying a second home, we can help. Call us on 0800 988 7756 for a FREE initial chat.

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