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Limiting the tax involved in buying a second property

Paystream News

David McManus

Thursday 24th May, 2018

Along with all of the usual costs involved in owning a second property such as the actual buying of the property, furnishings, repairs, bills and utilities, you would also need to consider any taxes that may be due. There are however measures to take to minimise the amount of tax to pay, by having an awareness of how stamp duty land tax (SDLT) and capital gains and income tax work in this respect.

Stamp duty on additional homes

Since 1 April 2016, second properties have been subject to an additional SDLT rate of 3% above those for main residences:

Band Additional property SDLT rate
£0-£125,000 3%
£125,001-£250,000 5%
£250,001-£925,000 8%
£925,001-£1.5m 13%
£1.5m+ 15%

Each rate is charged on the portion of the value of the property that falls into each band, so if you buy a second property for £200,000, you pay 3% SDLT on the first £125,000 and 5% on the remaining £75,000.

If you buy a freehold property for less than £40,000, no stamp duty is payable and HMRC do not need to be advised.

You can bear these amounts in mind when setting the budget for buying your second property, and when negotiating its purchase price in order to minimise the amount of SDLT you pay.

Capital gains and income tax

When you come to sell the property, if this is at a profit this means that Capital Gains Tax may be due. There are different rules if the property you are selling is your home, depending on factors such as how long you have lived in it as your main home or if you have let any of it out.

Any rent money you earn from letting out your second property is taxable and so needs to be declared on a HMRC tax return. Letting your second property as a holiday rental can also have insurance implications.

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