Key Tax Considerations When Buying A Holiday Home

Working from home and staycations in the United Kingdom has become the norm since the pandemic. A home at the seaside sounds delightful ...

When buying a property in England or Northern Ireland, you will be subject to Stamp Duty Land Tax (SDLT). For residential property, SDLT will start at 2% for properties valued greater than £125,000, increasing by tiers to 12%. A surcharge of 3% is applied where an additional property valued at over £40,000 is purchased.

"Rates increase by a further 2% for non-UK residents!"

Different Stamp Duty applies in Scotland and Wales with Land & Buildings Transaction Tax (LBTT) for Scotland and Land Transaction Tax (LTT) in Wales, but these Stamp Duty taxes are deductible from the proceeds when calculating chargeable gains.

When you want to let a property, you'll be taxed on rental profits at their marginal rates of tax which are 20%, 40% or 45%, though expenses are deducted when calculating taxable profits. Mortgage finance costs are restricted, reducing tax payable.

If you are offering a Furnished Holiday Let (FHL), some tax reliefs are available. Finance costs are deducible in full against rents and lower Capital Gains Tax (CGT) may apply on disposal. FHLs must be available and let for minimum periods.

When you want to sell the property, CGT rates for residential property are 18% and 28%. Still, legal costs and other associated costs are deductible as are costs for renovations to improve the property's value.

"Main Residence Relief applies if you have used it as your main home!"

If you're wondering about estate planning, when the value of your estate, including your holiday home, exceeds the Nil Rate Band (NRB) or £325,000 (or £650,000 for spouses/civil partners with joint ownership) you may have an Inheritance Tax (IHT) exposure of 40%.

If your seaside property is your actual main home that is passed to direct descendants on death, your estate could qualify for additional NRB of up to £175,000 or £350 for married couples and civil partners. This means a property valued at up to £500,000 or £1m can pass to heirs IHT-free.

"This relief is tapered down for estates valued at more than £2m!"

Working from home and staycations in the United Kingdom have meant buying a holiday home is more expensive, but there are many ways to manage the owners' tax exposure and, as always, I'm very happy to advise.

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.