Have you thought about buying a second home? You might want to buy a second house to rent out to make more money. Maybe you’d rather have a holiday home near the beach. Or perhaps you got a second house as a gift that needs some work. You might even want to make good use of your savings by buying a second home that you hope will increase in value. No matter the reason, buying a second home can be expensive because mortgages, taxes, and stamp duty are often more expensive than when buying a first home.
Below are essential factors you need to consider before buying a second home.
Know The Tax Implications
You will be subject to additional taxes on purchasing and selling a second residence. There are a few more taxes related to your home that you should think about.
- Council Tax – You must pay council tax on each of your homes if you own more than one, but you will not be charged more because of your second residence. Instead, some councils will give you a discount on your second home’s taxes if you don’t live there year-round. Please contact the relevant council to inquire about their current policy.
- Tax On Income – You must report the rental income from your second home as income when filing your taxes. You can treat this like any other source of revenue. Rental income might be a great source of extra cash, but it can also put you in a higher tax bracket, where you’ll have to pay more on tax.
Purchasing a home involves several critical financial considerations and choices. Working through the process can be exhausting and dangerous if not done with caution. A buyer should hire a conveyancer for this reason. For example, if you’re in Manchester, you should hire a Manchester conveyancer. You should be familiar with the role of the conveyancer in Manchester and the services they provide.
Higher Stamp Duty
When buying a home or piece of land in England or Northern Ireland, you must pay Stamp Duty Land Tax if the price exceeds a particular threshold. Stamp Duty is paid at the usual rates whenever a person buys a property that will be used as their sole primary residence. The Stamp Duty rates on a second home or investment property are 3% higher than the ordinary rates per Stamp Duty band. Since both second houses and buy-to-let properties fall under the category of “second dwellings,” the Stamp Duty Tax rates for both are the same.
Even if you’ve only ever owned a vacation house abroad before purchasing a home in the UK, you’ll still be subject to the tax. Any buyer must pay Additional Stamp Duty when purchasing a new property if they already own their current home outright, are co-owners, or have a part in the equity.
Getting a second mortgage depends heavily on one’s financial situation. Lenders are more likely to give you a second mortgage if you either have a high monthly income or are close to paying off your current mortgage.
When applying for a mortgage, you’ll need to specify whether or not the property in question will serve as a primary residence or a holiday home. Taking out a residential mortgage on a holiday or a second house typically means you can’t rent it out, as this violates the mortgage’s terms and conditions. You’ll need to apply for a different kind of mortgage if you plan to rent out your vacation property.