What do you need to know about owning a second/holiday home in Scotland?

Our Partner, Struan Ferguson recently contributed an insightful article to ESPC Magazine on the key things to consider when owning a second or holiday home in Scotland. We didn’t want you to miss it so we’re sharing his quick overview of what you need to know here.

Are you considering buying a second home in Scotland?

Scotland is one of the most beautiful countries in the world, with striking countryside, vibrant cities, rich history and distinctive culture.

It is also a hugely popular holiday destination, making it an attractive place to buy a second home or holiday property. But before you start browsing countryside cottages and coastal retreats, it is worth taking the time to understand what is involved in buying and owning one.

Finding that perfect second home

Your first challenge is finding the right property. You may already have an area in mind: perhaps the Scottish Borders for endless outdoor pursuits like walking, cycling, mountain biking or fishing; East Lothian or Fife for beautiful beaches and harbour towns; or the Highlands for breathtaking scenery and space. With your preferred location in mind, you will probably be watching property listings closely.

Finding your ideal holiday home can be harder than finding your main home. The usual priorities —commuting, school catchment areas, a home office, or space for day-to-day living — may matter less. Instead, you may want something rural, with a view, a garden, or storage for bikes, canoes or outdoor equipment.

Those sought after qualities also make it likely that a property will be popular. You may be competing with other second-home buyers and with people looking for a main residence. It is therefore sensible to have your finances organised and a solicitor instructed early. If you live outside Scotland, you will need a Scottish solicitor to act for you.

Financing a Second Home

Financing a second home is different from buying a main home. You are less likely to be relying on sale proceeds from a previous property and more likely to use savings, borrowing, or both. A second-home mortgage may require a larger deposit and different affordability checks, so early advice from a mortgage broker or financial adviser is recommended. Having you finance in order and not being dependent on a sale could work in your favour. A chain free purchaser is likely to be considered more favourably by a seller if you are competing with other buyers.

Tax, Tax and More Tax – Understanding the Tax Position

Tax is one of the biggest issues. When buying property in Scotland, Land and Buildings Transaction Tax (LBTT) may be payable. More importantly for second-home buyers, the Additional Dwelling Supplement (ADS) usually applies where the buyer already owns another property. ADS is currently charged at 8% of the purchase price, so it can be substantial. For example, on a £350,000 second home (the cost of a modest cottage in the Borders), ordinary LBTT of £8,350 and ADS of £28,000 would mean £36,350 in tax to fund!

There are ongoing costs too. Residential property owners pay Council Tax, and local authorities can charge higher rates for second or holiday homes. In Edinburgh, East Lothian and Fife, second homes currently pay 200% of the standard Council Tax rate; in the Borders, the rate is 225%. Other areas may charge more, and further increases are being considered. A mid-sized property in East Lothian, for example, could mean annual Council Tax of at least £4,000–£5,000, plus water and waste charges.

One of the attractions of owning property is that property values tend to steadily increase, meaning your property will gain value during your ownership. If your second home rises in value, you may however also face Capital Gains Tax when you sell, because a second home is not your principal private residence.

As you can see, tax features heavily when buying a second home, so it is best that you take advice and do your research at the outset so that you can budget accordingly.

Insurance Considerations

As the property is not your main residence, you will likely require a specialist second home insurance policy. The risks associated with properties that are not occupied year round mean that it is likely that this insurance policy will be more costly than the policy for your main residence. Second home insurance will also likely come with extra conditions such as additional security measures, winter precautions and regular checks.

Letting Out the Property?

Because buying and owning a second home is costly, many people will also let their properties to cover or contribute to the costs of running a property. Short-term lettings can be lucrative but they also come with a significant amount of additional regulation, now requiring licences, many additional health and safety compliance measures, and in some areas also planning consent.

Get In Touch

As you can see, buying a holiday home in Scotland, while attractive, is costly. Expert advice should be sought at the outset from a Scottish solicitor who can then guide you through the process. If you would like to discuss this in more detail please contact the team for tailored advice for your purchase.