Is owning a second home still worth it?

The Chancellor has laid out plans to push property investors to sell up in an attempt to ease the housing crisis, reports Ruby Hinchliffe

Jeremy Hunt sent a clear message to Britain’s second-home owners in his Budget this week: sell up to make way for first-time buyers. The Chancellor laid out plans to abolish tax relief for holiday-let owners, scrapped stamp duty discounts for multiple home purchases and encouraged second-home owners to sell by cutting capital gains tax (CGT).

Critics say the reforms will make second-home ownership the preserve of the very wealthiest and may do little to help ease the housing crisis for young buyers.

However, after years of bad news for property investors, is it now finally time to sell up – or is there still money to be made out of bricks and mortar in Britain?

In his spring Budget on Wednesday, Mr Hunt seemed to give with one hand and take with the other. He slashed the higher rate of capital gains tax on property from 28pc to 24pc, a potential saving of nearly £4,000 on a £100,000 gain – depending on a seller’s income. But the capital gains tax-free allowance is also to halve next month – from £6,000 to £3,000 – having steadily been reduced over the past few years.

For second-home owners who let their properties to holiday goers, Mr Hunt threw in yet more incentives to sell. From April 2025, the “furnished holiday lettings” regime will be no more. It has allowed holiday- let owners to claim full mortgage interest relief and enjoy more generous tax treatment on capital gains than private landlords.

The Treasury is banking on more landlords and second-home owners selling up so more stock is freed up for “those looking to get on the housing ladder for the first time”.

The Chancellor also decided to get rid of multiple dwellings relief (MDR), which will penalise those trying to buy properties with an annex – which count as two dwellings – potentially setting families back by tens of thousands of pounds. Chris Etherington, of tax adviser RSM, said holiday-let owners in particular will undoubtedly sell up over the next year. Especially now they are faced with the prospect of no longer benefiting from business asset disposal relief, which lets them pay just 10pc tax on profits from a sale, rather than 24pc.

Mr Etherington said: “It’ll be a no-brainer. That, and the prospect of no more mortgage interest rate relief, which will make it harder to afford to run these properties.

“We could see a bit of a mad rush of owners banking the 10pc tax rate while they still can. It’s a double win for the Treasury. It will lead to more people paying CGT, and light the spark for more property transactions – pushing up stamp duty land tax receipts.”

For second-home owners, the squeeze is already being felt. Local authorities now have the power to double their council tax bills and the 3pc stamp duty surcharge – introduced in 2016 – has increased upfront costs.

This is why thousands now let their homes to holiday goers when they aren’t there, to benefit from the more generous tax regime

Mr Hunt is about to end. Ben Edgar-Spier, of Sykes Holiday Cottages, said holiday-let owners “have been unfairly scapegoated in the guise of controlling rising house prices and availability” in Mr Hunt’s spring Budget.

He instead pointed the finger at the Government’s “lack of progress” on housebuilding targets, having only overseen the development of 178,000 homes across England last year against a target of 300,000.

Private landlords are another group the Chancellor is hoping will be persuaded to sell up. But for Paul Bonner, a 37-year- old landlord in Warrington with three properties he has bought over the past five years, a change from 28pc to 24pc in CGT won’t be making him run to the estate agent anytime soon.

The father of two uses the majority of his rental profits – a few hundred pounds a month – to pay for childcare, as his overall income means he gets no tax-free childcare support. For Mr Bonner, the properties are long-term investments for retirement so he is trying not to squeeze rental yields out of his tenants – currently, he is charging 10pc below market rate.

“I’ve got no plans to sell,” he said. “The Budget was pretty underwhelming and disappointing for landlords like me. There was nothing in there that gave us any support.”

One thing Mr Hunt did do was bring tax treatment of short-term landlords in line with those like Mr Bonner, who have – since 2016 – lost mortgage interest rate relief benefits and have for years faced the higher rate of CGT if they sell.

Tom Bill, of estate agent Knight Frank, said the lower rate of capital gains tax payable from April “is not a huge cut”, but may tip the balance for some – depending on how long they have owned the property and the taxable gains that have been built up.

“The more interesting question is why would you sell? House prices have turned a corner and we expect average UK capital value growth of 21pc over the next five years, which may attract some looking to supplement pension income now or in the future,” he said.