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Second Home

Also known as: Holiday Home, Vacation Property

Definition

A second home is any residential property you own in addition to your main residence, such as a holiday home, vacation property, or inherited house, which has distinct tax and estate planning implications.

Understanding the distinction between your main residence and second homes is crucial for estate planning, as second homes are treated differently for inheritance tax, capital gains tax, and council tax purposes.

What Does Second Home Mean?

Under UK law, a second home is any residential property you own beyond the property where you live most of the time. For council tax purposes, the government defines second homes as dwellings which are substantially furnished but have no resident—meaning it's not someone's sole or main residence. Common types include coastal holiday cottages, rural retreats you visit occasionally, inherited properties you've kept, and buy-to-let properties you sometimes use personally.

The legal principle is straightforward: you can only have one main residence for tax purposes. Everything else counts as a second home. This distinction matters enormously because your main residence qualifies for valuable tax reliefs that second homes don't receive. When you own multiple properties, you can nominate which one is your main residence to HMRC, but this election must be made within two years of acquiring your second property.

Second homes form part of your taxable estate at full market value for inheritance tax purposes. Unlike your main residence, second homes don't qualify for the residence nil-rate band (RNRB)—an additional £175,000 allowance available only for the property you lived in as your home. When you sell a second home, you'll pay capital gains tax on any profit because private residence relief doesn't apply. The current CGT rates are 24% for higher-rate taxpayers and 18% for basic-rate taxpayers on residential property. You also face a stamp duty surcharge of 3-5% when purchasing second homes, and council tax premiums of up to 100% extra in England (up to 300% in Wales) from April 2025.

However, second homes offer significant estate planning flexibility. You can leave your main residence to one set of beneficiaries—such as your spouse—and your second home to others, like your children. This is particularly valuable in blended families where you might want to provide housing security for your current spouse while ensuring children from a previous relationship inherit the second property. David and Sarah Thompson own their £450,000 main residence in Birmingham and a £320,000 holiday cottage in Cornwall. In their will, they leave the Birmingham home to each other, then to their two children, while leaving the Cornwall cottage directly to their children in equal shares. This strategy uses the second home's flexibility to provide for both spouse and children efficiently.

Emma Clarke inherited her mother's £290,000 house in Leeds but continues living in her £380,000 London flat. Emma now owns two properties and must nominate her London flat as her main residence to HMRC within two years of inheriting the Leeds house. If she later sells the Leeds property, she'll pay capital gains tax on any increase in value from the probate valuation. In her will, Emma specifies that the London flat goes to her partner while the Leeds house goes to her two nieces—strategic distribution that provides for her partner's housing needs while keeping family property in the bloodline.

Common Questions

"How does owning a second home affect my inheritance tax liability?"

A second home forms part of your taxable estate for inheritance tax purposes and is valued at full market value. Unlike your main residence, second homes don't qualify for the residence nil-rate band (RNRB), which provides an additional £175,000 allowance. The £325,000 nil-rate band still applies to your total estate, including all properties.

"Can I leave my second home to different beneficiaries than my main residence?"

Yes, you can leave your second home to different beneficiaries than your main residence in your will. Many people use this flexibility strategically—for example, leaving the main residence to a spouse and the second home to children, or dividing properties between children from different relationships. This must be clearly specified in your will.

"What happens to council tax on my second home when I die?"

Your executors won't pay council tax on a second home during the probate process until the grant of probate is issued, as long as the property remains empty. After probate is granted, the property may be exempt from council tax for up to six months if it remains empty and unsold. Second home premiums don't apply during this probate exemption period.

Common Misconceptions

Myth: "My holiday home qualifies for business property relief from inheritance tax if I rent it out occasionally."

Reality: Holiday homes and furnished holiday lets almost never qualify for business property relief (BPR). HMRC successfully challenges these claims because holiday letting is classified as "making or holding investments," not trading business activity. Recent tax tribunal cases consistently rule against holiday let owners attempting to claim BPR, even with substantial guest services provided.

Myth: "If I die, my second home automatically passes to my spouse like my main residence does."

Reality: No property automatically passes to anyone unless specific legal mechanisms apply. Second homes only pass to your spouse if you leave it to them in your will, you own it as joint tenants (creating automatic survivorship), or they inherit under intestacy rules if you die without a will. Without a will, intestacy rules may not distribute assets as you intended, especially with larger estates or blended families.

  • Multiple Properties: Second home is a specific instance of owning multiple properties—when you own several residential properties, each one beyond your main residence counts as a second home.
  • Overseas Property: Overseas second homes have all the same tax implications as UK second homes plus additional complexity from foreign inheritance laws, forced heirship rules, and double taxation treaties.
  • Main Residence: You can only have one main residence for tax purposes—this property qualifies for residence nil-rate band and private residence relief, while second homes don't.
  • Property Portfolio: When you own multiple second homes alongside buy-to-let properties, they form part of a larger property portfolio requiring comprehensive estate planning and potential business property relief considerations.

Need Help with Your Will?

If you own a second home, including it correctly in your will is essential to ensure your property goes to the right beneficiaries and to understand the tax implications for your estate and heirs.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.