The Pleasures and Pitfalls of owning a Second Property
Many people either find themselves in the position of owning more than one property (even if temporarily during the administration of a relative’s Estate) or because they decide to purchase one for pleasure or investment purposes.
There are several issues to bear in mind to ensure that your enjoyment of the property is maximised and you are not overburdened with unforeseen expense or stress:
1) Capital Gains Tax (“CGT”) when you finally sell the property.People often don’t realise that this applies to inherited property (on the gain from the date of death) and also to properties which used to be your home. For example, it is not unusual for a couple each to have owned their own home before deciding to move in together leaving them with one residence and one investment property. Steps can be taken to legitimately avoid or reduce a CGT charge in these instances.
2) Stamp Duty (“SDLT”) on the purchase of a second property.An additional SDLT charge has recently been introduced and well publicised.The charge is 3% above the normal SDLT rate on all properties valued at more than £40,000. If people think ahead before making an investment purchase they may be able to rearrange their assets to avoid this charge.
3) Savings to be made with Holiday Rental Homes.These can include Council Tax relief, Entrepreneurs Relief (to reduce CGT on sale) and very possibly Inheritance Tax advantages, though the Inland Revenue is working hard to resist allowing an IHT saving for holiday rental properties at the moment.This may change however so taking the right advice to ensure that your activities and paperwork are in order is very sensible.
As with all investments the greater profit comes from taking the best professional advice from your Solicitor and Accountant both at stage one and routinely throughout your ownership of the property.