SDLT Surcharge and Capital Gains Tax on Second Homes
When you purchased your second home, you paid the standard stamp duty land tax rates plus the additional 3% surcharge that applies to the purchase of second and subsequent residential properties. From October 2024, this surcharge was increased to 5% for most additional residential property purchases. While this surcharge was paid at the time of purchase and does not directly affect your remortgage options, it is part of the overall financial picture of second home ownership that lenders will consider when assessing your overall commitments.
Capital gains tax is a more significant consideration for second home owners. When you sell your second home, you will pay CGT on the gain — the difference between the selling price and the original purchase price (plus allowable costs). Your primary residence benefits from principal private residence (PPR) relief, which eliminates CGT on gains made while you occupy it as your main home. A second home does not qualify for PPR relief for the periods it is not your main residence. The annual CGT exempt amount has been significantly reduced in recent years, making CGT planning increasingly important for second home owners.
The current capital gains tax rates on residential property are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. These rates apply to gains on second homes and investment properties, not to gains on your main residence. The tax is payable within 60 days of completion if you sell after April 2020, which means having a plan in place before you exchange is important.
Some second home owners consider nominating the second property as their main residence for CGT purposes for a period of time, which can protect some gains from tax. The rules around this are complex and depend on your specific circumstances. If CGT on a potential future sale is a concern, speaking with a tax adviser alongside your mortgage broker is advisable before making decisions about how to structure your borrowing or when to sell.
Residential vs Buy-to-Let Mortgage for a Second Home
The type of mortgage you need for a second home depends critically on how you use the property. If the property is kept entirely for your personal use — as a holiday retreat, weekend base, or pied-a-terre — a residential second home mortgage is appropriate. These products are designed for properties that are used by the owner without generating any rental income, and they are assessed primarily on the borrower's income and ability to service two mortgage commitments simultaneously.
If you let the property to tenants on long-term assured shorthold tenancies, you will need a buy-to-let mortgage rather than a residential second home product. Using a residential mortgage for a property that is being let is a breach of the mortgage conditions in most cases and could result in the lender requiring immediate repayment. Lenders are alert to this risk and will ask about your intended use when you apply.
Short-term holiday letting occupies a middle ground. Letting your second home occasionally to holiday guests does not automatically require a BTL mortgage in all cases, but many lenders will require a dedicated holiday let mortgage product if commercial letting is a regular part of how the property is used. The distinction between occasional personal letting and commercial short-term letting is one that lenders and brokers draw carefully, and your broker can advise on which product type is appropriate for your specific letting model.
Some lenders offer second home mortgage products that explicitly permit occasional holiday letting up to a certain number of weeks per year without requiring a switch to a holiday let product. This flexibility can be valuable for second home owners who want the option to let occasionally without being tied to a more restrictive product. Checking the conditions of any product before you apply is important.
