What Are the Legal Implications of Buying A Second Home?

According to the figures published in the 2022-2023 English Housing Survey, 2.1 million households living in England had at least one second home. Most of these are rented out on the private market, but just over a third (712,000) used the property as their second home. As with any property purchase, there are legal implications. However, these are slightly different to when the homeowner is looking to buy their primary home. That is why the conveyancing team at Eatons has put together a guide detailing the legal implications of purchasing a second home.

Understanding Second Home Ownership

Under English law, a second home is defined as a furnished property that is owned in addition to a person’s main residence. These are usually long-term investments such as buy-to-let properties, holiday homes, a pied-a-terre, and retirement homes. However, if a homeowner intends to buy a second home, we recommend they get legal advice from a property solicitor who can guide them through the legal process.

Conveyancing Process

The conveyancing process of buying a second home works the same way as it does when a homeowner buys a primary residence. It means your conveyancing solicitor will conduct identical searches and investigations as when the homeowner is purchasing their primary residence. These include environmental searches (checks for flooding, ground stability, contamination hazards…) local authority searches used to check for building regulations certificates and information regarding work conducted on the property, a water and drainage search, and Land Registry searches.

Stamp Duty Considerations

In England and Wales, when buying a property, the buyer must pay Stamp Duty Land Tax, a property transfer tax on land transactions. However, when buying a second property the new owner is subject to a surcharge which from April 2025 will start at 5% on properties worth up to £125,000, and then rise on a sliding scale up to as high as 17% on homes valued over £1.5 million.

Buy-To-Let Property Considerations

Purchasing a buy-to-let property falls under the same stamp duty regulations as those of a second home. However, if in the future, the homeowner intends on selling the property, they will be subject to Capital Gains Tax at a rate of 24% from April 2025. Moreover, any income from the property is subject to income tax using the same income banding system currently in use for this type of taxation.

Holiday Home Considerations

When purchasing a holiday home, the homeowner is subject to the same second home stamp duty surcharge as would be the case for any other second home. However, if the holiday home is rented for more than 70 nights per year, the homeowner must pay business rates instead of Council Tax.

If the holiday home is passed on when the owner passes away, the property is subject to inheritance tax, unlike a primary residence for which there is a break. But, if all allowances have been used, those inheriting the property will have to pay 40% of the value of the holiday home in inheritance tax.

Pied-a- Terre Considerations

Unlike a holiday home or a buy-to-let property, a pied-a-terre isn’t bought to make a profit. Instead, the purpose of this property is to allow the homeowner to live closer to their place of work during the week. Therefore, these properties aren’t subject to Capital Gains Tax, Income Tax, and Business Rates.

However, as it won’t be considered the owner’s primary home, this property remains subject to the Stamp Duty surcharge. The buying process is also the same as that of any other property, so the conveyancing process stays the same.

Expert Legal Advice: The Key to Buying a Second Home

Because legal and financial implications of buying a second home are different depending on how the property will be used it is important to receive the correct guidance. That is why we recommend you contact our team of conveyancers.