Our residential sales team work regularly with their clients and advisers on succession planning for second homes or in advance of selling their property. The changes in the Budget will necessitate that this process continues and, in some cases, may precipitate a sense of urgency given the new regulations the Government has announced.
A lot of our work, especially transactional, is for high-net-worth individuals who are seeking to dispose of their second home, usually situated around the South East of the UK. Our wider rural team also advise clients with similar properties across the UK, although the latter are usually part of wider rural asset portfolios.
According to the latest English Housing Survey (updated July 2023) there are 809,000 second homes owned by households in England, which equates to 3% of the UK population. However, just over 60% of those were UK-based; the other 40% are outside of the UK. The survey goes on to state that the overall use of second homes varied: 35% were used as a long-term investment, 45% as a holiday home, 9% as a retirement, 8% as an escape from the city, 7% as a previous main home, and 13% for other reasons.
Budget impact
In terms of impact of the Budget, despite the media trailing major increases in Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) in advance, the impact of changes was something of a mixed bag for second homeowners.
The basic and higher rates of Capital Gains Tax increased from 10% to 18% and 20% to 24% respectively for non-residential property. What is more, there was no CGT increase for residential properties which is great news for buy-to-let investors and the like.
However, the surprise announcement was that Stamp Duty Land Tax for the higher rate payer seeking to purchase an additional dwelling would rise from 3% to 5%, taking effect from 30th October 2024. This means that if you purchased a property on the 31st of October 2024 as opposed to 30th October 2024, based on a purchase price of £500,000, the SDLT would have been £37,500 instead of £27,500 if completed the day before.
The impact of changes was something of a mixed bag for second homeowners.
Council tax on second homes
The Levelling Up and Regeneration Act 2023 comes into force from 1st April 2025, with second homeowners being charged up to twice the normal rate of Council Tax. It is within the jurisdiction of the relevant local authority to decide whether this is a second home and, if so, subject to the additional tax. It is not necessarily applicable to all.
In terms of the impact of this on the market, whilst it seems the ongoing view that second home owners are to be viewed as unwelcome is supported by various fiscal levers that are being pulled, it is interesting to note that the Pembrokeshire County Council – an early adopter who quickly increased Council Tax to the 200% level – has just announced it is to be reduced back to 150%.
So back to the question 'to sell or not to sell?': Broadly speaking, it is likely that the trajectory and future of interest rates are going to have a continued effect on the value of these type of properties along with the various other factors outlined here.
There are a number of further considerations, which can include matters such as:
- Differing ownership structures for second homes, to include individuals, a company or a trust.
- Stamp Duty Land Tax for a purchase, where in specific instances properties can qualify as 'mixed use' which can bring with it significant SDLT savings.
Those considering purchasing, selling or structuring the ongoing ownership of their second home should consult their accountant and solicitor and stress test any proposed purchase, sale or changes to ensure that from a tax and legal perspective, their structure fits best under the new regulations.
All views expressed are those of the author and are presented for information purposes only. The information provided in this article is of a general nature and is not a substitute for specific advice about your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from any action.
With offices in Hampshire, Petersfield, Oxford, and the Isle of Wight, BCM Wilson Hill are property consultants that specialise in advice on planning for second homes.
