Owning a second home can create a challenging decision: what should you do with it?
Selling or renting it are the two most common options.
We’ve explained which one might be best in this article.
Different ways people get a second house
Saving up and buying
Many people buy a second house after saving up for a long time.
This is when your income allows you to save on top of mortgage payments on your main property. You will often still need to take out a loan or mortgage to do this.
But since property is such a great investment, you may have had your eyes set on this goal for a long time.
Inheriting a property
Inheriting a property from a loved one who passes away can give you a second house, if you already own one.
This may come unexpectedly and thus create a situation you haven’t prepared for.
Gift from a loved one
Your loved ones can gift you a home while they’re still alive. This is more typical between parents and their children.
It can avoid inheritance tax needing to be paid on this asset, as long as they survive for 7 years.
Advantages of selling your second house
Reduce your stress
Owning a property is stressful. You need to meet regular payments, like council tax and mortgage repayments.
And if you’re renting it out, dealing with your tenant(s) on a regular basis can make life complicated.
Your daily life is usually easier by cashing in. You’ll be able to sleep more comfortably and enjoy the equity tied up in the house.
Access money for a different purpose
By hanging onto a house, you can’t really access the equity in it. Selling it allows you to do that in its entirety.
You can then use this cash however you like, such as investing elsewhere or going on holiday.
Avoid a financial burden
The truth is, inheriting a property can sometimes be a financial burden.
When a large mortgage remains, you may need to pay this – without any means of doing so.
It can thus be a risk to hang onto the house. Falling behind on one of your mortgages could have repercussions for the other one.
Advantages of renting your second house
Increase your income
Renting out a property increases your monthly income, once a tenant is in place.
This means that you’ll have more money on a regular basis.
You just need to ensure you manage your costs well, and that it isn’t vacant for too long.
Benefit from growth in property value
The UK housing market has an excellent track record of improving year-on-year. Many investors flock to it.
The longer you hold onto it, the more you’ll benefit from a rise in property value.
You can keep it in the family
Passing on a house is many people’s dream. Renting your second house means that you retain ownership of it.
You could then give it to your children later in life. This is especially worthwhile if the property has extra sentimental value.
Tax implications when selling a second house
If the house has increased in value since you first bought or inherited it, then Capital Gains Tax will be due.
You also tend to pay higher rates on property, compared to other types of asset.
There may be inheritance tax due if you sell a second house that you’ve received in a Will.
And if you own the property in a company name, corporation tax could be due.
Tax implications when renting a second house
If the income from renting out your house goes into your personal name, then income tax will be due on it.
If the money goes to a company, then corporation tax may be due at the end of the financial year.
Council tax will need to be paid on the house. And VAT is often involved with some of the transactions you make around furniture, repairs, and so on.
Selling vs renting second homes
It depends on your personal and financial situations.
If the house has sentimental value, you’ll want to keep hold of it. This means renting it out is a great option.
This also applies if you want to increase your income. As long as you have the time and headspace to manage all the hassles involved with being a landlord.
But, you may have inherited a mortgage you can’t afford.
Selling could be the only option in this position. Especially if you have no sentimental attachment to the house, or it’s a long way from where you live.
If you’ve saved up to buy a house, you may have a clear plan in your head about how you plan to leverage it.
Holding onto it tends to work out better long-term. This is due to property prices usually increasing over time in the UK.
