Over the last few decades there have been many changes to the world of work including the rapid increase in migration to the UK and the growing number of women...
Buying a Second Home: Our Guide and Top Tips
There are many reasons why you may be thinking about buying a second home.
You may want to purchase a holiday home or perhaps an investment property to rent out. You may think that property development is the way forward. Whatever, the reason, there are things you will need to consider.
The big question which usually springs to mind when considering purchasing a second home is “how much will the tax man want from me?”.
There are two types of tax you will need to consider:
Stamp Duty Land Tax (SDLT)
If you are buying a second home, you will be liable to pay a higher rate of SDLT.
You should ensure you calculate your SDLT liability on HMRC’s calculator. However, essentially what you will be paying is 3% on top of the usual SDLT rates for residential property.
Capital Gains Tax (CGT)
A second home may be subject to CGT when you sell it, if the value of the property has increased since you purchased it. You will only pay CGT on the sum you have gained. You will need to seek advice on this type of tax from your financial advisor or accountant.
Now, let’s look at the different types of purchase you may be thinking about:
Buying a Holiday Home
You get to go to your favourite UK destination over and over . . . sounds great! But, you should consider the type of property you want to spend your holiday in.
You could buy a cheaper property that needs a little TLC. But do you really want to spend your holiday with paintbrush in hand?
Do you still spend most of your time working? Perhaps letting out your home to other holiday makers seems like a sensible option? That way it will be earning you money whilst you aren’t using it.
If you will need to purchase with a mortgage, you should ensure you speak to your financial advisor. If you are renting the property out, you won’t be able to have a usual residential mortgage.
Buying a Buy to Let Property
You keep looking at your savings account balance and realise you have earned barely any interest for years! Perhaps purchasing a second property using your savings and renting it out would be a better idea? It may well be, but you should consider how volatile the property market can be. You could make a lot of money, but equally you could lose a lot.
You should carefully consider:
- The type of property and the local area – will the property attract a good tenant?
- Do you need to purchase with a mortgage?
- Speak to your financial advisor and ensure you are purchasing a good investment before you commit financially.
If the property market is strong, you may think purchasing a a cheaper property which needs work and renovating it, is the route to riches. This can be very lucrative but this can depend on many factors.
- Are you going to be able to sell the property quickly once you have finished the renovations?
- Can you afford to do all the work that is needed?
- Do you have reliable trades people or are you planning on doing the work yourself?
- Have you anticipated potential delays or additional expenditure?
First, fully investigate the property you are buying. If you purchase the property and have a budget for the renovations, you don’t want to be surprised by the fact that the property turns out to need a full electrical re-wire or there is rising damp.
As with any property you purchase, it is advisable to instruct a surveyor and, if you are at all concerned, instruct an engineer to do an electrical test or gas safety check. The cost of these investigations may be off putting but it is better than being taken by surprise after you have invested all of your hard earned cash.
Your conveyancer will, as a matter of course, carry out searches on your behalf. These will include a local authority search, drainage and water search and environmental search. Depending on the area, other searches may be necessary, for example, a mining search.
If you are not buying with a mortgage, you can instruct your solicitor to dispense with these searches However, searches are important as they give all manner of details about the property you are buying. For instance, your new property may be built on contaminated land or there is going to be a large housing development built on the field next door. Perhaps you thought the property was connected to mains drainage but it turns out there is a septic tank. These are just a few of the issues which may arise and which you would definitely want to be aware of before making your investment.
Lisa Hope is based in WSP Solicitors Gloucester Office on London Road. If you would like to speak with our Residential Property Conveyancing Team about buying a second home then you can call us on 01453 847200 or by using the contact form found here to get in touch.
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