Selling a Second Home

How do I sell my second home?

Selling a second home can take a bit more planning than selling a house which is your main residence, from assessing the property’s condition, and market value, choosing a reliable and experienced estate agent and preparing your property for sale, especially if the property is further afield from where you live. The other thing you need to consider is the implications in terms of Capital Gains Tax. In this article, we delve into the steps to take to sell a second property and how you may be affected by CGT. 

What steps do I need to take to sell a second home?

By following the steps below and working closely with professionals, you can navigate the process of selling your second home efficiently and with minimal stress:

1. Assess the Market Value:

The first thing to do is to determine the current market value of your second home. Consider getting at least 3 valuations from experienced estate agents, as well as doing your own online research into current property values for similar properties. 

2. Understand your Target Market:

Think about the size and condition of your property to identify who you think may be attracted to it. For example, a second property located near to schools might be the perfect choice for a family, whereas a flat near to the city centre might appeal to an investor or young professional.

3. Prepare the Property:

Be sure to make necessary repairs and enhancements to increase the property’s appeal. First impressions really do matter, so ensure the home is well-maintained and aesthetically pleasing to potential buyers. Selling a property in need of renovation can be very different to selling one in move-in condition.

4. Prepare your Finances:

If the property is mortgaged, contact your lender to find out what outstanding balance there is on the property and if there are any exit fees you will have to pay once the property is sold. 

5. Choose an Estate Agent:

Choose a reliable and experienced real estate agent who specialises in the local market and is familiar with the type of property you are selling and the type of buyer you are looking to sell to. A good agent will assist with pricing, marketing, and navigating the complexities of the sale.

6. Market the Property:

Develop a comprehensive marketing strategy to showcase the property’s strengths. Be sure to have high-quality photographs, and, if possible, virtual tours to attract potential buyers. If using an estate agent, be sure to ask about their own methods of marketing and make sure they match your requirements.

7. Legal Compliance:

You will need to make sure you comply with all legal requirements. This includes providing necessary property disclosures, including if you know of any issues relating to the property, obtaining an Energy Performance Certificate (EPC), and addressing any outstanding legal issues.

8. Navigate Viewings:

This will likely be done by your estate agent, but if you are taking viewings yourself, it may be an idea to ask for block viewings so you can show a group of people around in one go, which will be less time-consuming for you. If your second property isn’t close to where you live, you will also have to factor in travel time.

9. Negotiate the Sale:

Once you have an interest in the property, it may be that you find yourself in a position where you have to negotiate with potential buyers to secure the best possible deal. This can be common with second properties, especially those that are inherited, as buyers may think you ‘just want rid’ of the property so are prepared to take a low-ball offer. While is it always beneficial to be open to offers, have in mind a figure that you will be prepared to take and work closely with your estate agent to reach a mutually beneficial agreement with the buyer.

10. Accept an Offer:

Once a suitable offer is made that you want to accept, carefully review the terms and conditions. If satisfied, accept the offer and proceed to the next steps. At this point, you will instruct your conveyancer to start the legal work and your buyer will likely instruct a surveyor.

11. Conveyancing:

Instruct a good solicitor or conveyancer to handle the legal aspects of the sale. They will manage the transfer of ownership, handle contracts, and ensure all legal requirements are met. They should also update you regularly on progress and be on hand to answer any queries you have.

12. Complete the Sale Contract:

Work with your solicitor to finalise the sale contract. This includes signing all relevant documentation, agreeing on the completion date, defining the terms of the sale, and addressing any special conditions.

13. Exchange Contracts:

Both you and the buyer will now sign and exchange contracts, which makes the sale legally binding. At this stage, a deposit is typically paid by the buyer, ready for completion.

14. Completion:

On the agreed-upon completion date, ownership officially transfers to the buyer, and the remaining funds are transferred to yourself. Your conveyancer will ensure all outstanding payments, including any mortgages, are settled.

15. Hand Over the Keys:

Once the sale is complete, hand over the keys to the new owner, or the estate agent. Don’t do this until the funds are received. It is helpful to make things easier for the buyer by providing necessary documentation, such as manuals and contact information for utilities.

16. Notify Relevant Parties:

Inform relevant parties, such as utility companies, of the change in ownership, so you don’t get any unwanted bills further down the line.

17. Documentation and Record-Keeping:

Maintain a record of all documentation related to the sale for future reference. This includes contracts, receipts, and communications with relevant parties.

18. Tax Considerations:

It is vital that you understand the tax implications of the sale, including potential Capital Gains Tax obligations. Seek advice from a tax professional to manage your tax liabilities effectively.

What tax do I pay on a second house?

When selling a second home, one of the key considerations is the tax implications. Capital Gains Tax (CGT) is applicable on any profit made from the sale of a second home, including a buy to let property or holiday home. It’s essential to understand the rules and exemptions related to CGT to ensure compliance and avoid any unexpected tax liabilities.

What is capital gains tax?

Capital Gains Tax is a tax on the profit of made when selling a second home that has increased in value. In the context of selling a second home, CGT applies to the difference between what you paid for the property and what you sell it for. You will also pay Capital Gains Tax if you are transferring the property to someone else, but in this instance, the market value of the property will replace the sale price.

Do I have to pay capital gains tax on my main residence?

Typically, your main residence is exempt from CGT, unless you have used it as a business premises or have let out part of the property. However, if you own just one property, but that property is let out, CGT rules will apply. If you own 2 properties, you can nominate one of them to be tax-free, so, in effect, this could be the property that will have the largest profit when sold. You have 2 years from the point of buying a new home to nominate it as your main residence. Consulting with a tax professional can help clarify the specific implications for your situation.

How do I calculate capital gains tax?

Calculating CGT involves subtracting the property’s purchase price and allowable expenses from the sale proceeds. Specific reliefs and allowances may apply, affecting the final CGT liability and the rate you pay will depend on what rate taxpayer you are:

Basic Rate Taxpayer – 18%

Higher Rate Taxpayer – 28%

Any capital gains made during the year will also be included in your personal tax calculation, so be sure to fully understand if the gains made will push you into a higher tax band for the year, meaning you will have to pay a higher rate of tax on a proportion of the profit. 

The Government has a tool you can use to work out what Capital Gains Tax you will pay, but the basic calculations are:

Gains = Purchase Price – (Sale Price + Buying & Selling Costs + Improvement Costs) 

GCT Payable = (Gains – GCT Allowance) x GCT Tax Rate 

It is worth noting that you have to report to HMRC via the Government Gateway (to set up an account online usuallt takes around 10 days) and pay the CGT within 30 days of completion on the sale of a second property, so be sure to have all of your dates, documents and costings ready before the sale completes.

Do I have to pay capital gains tax on an inherited property?

Inheriting a property may have CGT implications if you decide to sell. The property’s market value at the time of inheritance becomes the starting point for CGT calculations when you sell the property.

Is there any allowance with capital gains tax?

Individuals are entitled to an annual CGT allowance, known as the Annual Exempt Amount. This is the threshold at which CGT becomes applicable. Utilising this allowance effectively can help minimize the overall tax liability.

For the 2020 to 2021 tax year, the allowance is £12,300. Couples who jointly own assets can combine this allowance, potentially allowing a gain of £24,600.

How can I reduce my capital gains tax bill?

Several strategies can help reduce the CGT bill, such as maximizing available reliefs, using the annual allowance wisely, and considering eligible expenses. You are allowed to deduct certain expenses from your gain to reduce the amount you will owe in tax. These include estate agent’s fees, solicitor’s fees and the cost of any improvement work. You cannot deduct the costs of maintaining the property., such as new carpets or decorating.

When do I not need to pay capital gains tax?

Certain situations, such as selling your main residence or benefiting from specific reliefs, may exempt you from paying CGT. If the property had been your home at some point in the 9 months prior to the sale, then this part of the gain would be exempt from tax. This means that if you choose to buy another property before selling your old one, you will have just 9 months to do this before having to pay Capital Gains Tax. Understanding these exemptions fully is essential for making informed decisions about your property sale.

In conclusion, selling a second home involves careful planning, understanding the tax implications, and exploring opportunities to minimise tax liabilities. Seeking professional advice will help to ensure a smooth sales process and effective tax management.