Buying a second home: Costs, tax, and what's changed

For second-home buyers, the financial landscape looks very different in 2026 than it did just two years ago. The cost of buying and owning an additional property has risen, driven by a series of tax and regulatory changes that affect everything from upfront purchase costs to ongoing ownership expenses.

Three changes matter more than any others. First, the Stamp Duty Land Tax (SDLT) surcharge for second homes increased from 3% to 5% on 31st October 2024. Second, the Furnished Holiday Lettings (FHL) tax regime was abolished from April 2025, removing several tax advantages previously available to short-let owners. Third, local authorities across England gained the power to charge a council tax premium of up to 100% on second homes from April 2025, with many councils choosing to adopt it.

Whether you're considering a coastal holiday home, a future retirement property, or a second residence that may generate occasional rental income, these changes have a direct impact on affordability and long-term costs. Understanding the full financial picture before making an offer is now more important than ever.

At Hamptons, we handle thousands of residential transactions every year through our network of more than 80 branches across London and the South of England. That gives us a clear view of how second-home buyers are adapting to changing market conditions, and where opportunities still exist.

Importantly, higher transaction costs have not removed demand from the market altogether. Hamptons Research has identified renewed activity from buyers who see value in locations where pricing has adjusted, particularly in parts of London. After a period of slower activity, some purchasers are returning to the market, attracted by improved negotiating conditions and a wider choice of available property than has been seen in recent years. For buyers with a long-term outlook, that can create opportunities despite the higher tax burden.

Before committing to a purchase, it's worth understanding how your intended use of the property affects everything from financing and taxation to your ongoing holding costs.

Key insights

• SDLT surcharge on second homes is now 5%, up from 3%, and applies in addition to standard SDLT rates.
• The Furnished Holiday Lettings regime ended in April 2025, meaning short-let income is now generally taxed in line with other residential rental income.
• Many councils have introduced a 100% council tax premium on second homes, substantially increasing annual ownership costs.
• Residential property Capital Gains Tax rates are currently 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, with a £3,000 annual allowance.
• Most lenders require a minimum 25% deposit for a second-home purchase, with mortgage rates typically higher than those available for a main residence.

Why are you buying a second home?

Before looking at mortgages, tax bills and ongoing costs, it's worth being clear about why you're buying a second property in the first place. Your intended use will influence almost every financial decision that follows, including the type of mortgage available, your exposure to council tax premiums, and how any future income or gains are taxed.

Most second-home buyers fall into one of three categories.

Holiday home or weekend retreat

For buyers looking for a property primarily for personal use, the focus is often on lifestyle and convenience rather than investment returns.

In many cases, this is the simplest ownership structure. Mortgage options are generally more straightforward, as lenders may offer second-home residential products designed for personal use rather than rental income. However, the ongoing costs of ownership have become more significant since the introduction of second-home council tax premiums in many areas.

Location choice matters. A property that looks attractive on paper can become less practical if travel times are longer than expected or transport links are limited. Buyers often find that accessibility from their main residence plays a larger role in long-term enjoyment than anticipated.

Key considerations include:

• Travel time from your primary home
• Seasonal demand if occasional letting is planned
• Local authority council tax policies
• Maintenance requirements when the property is unoccupied
• Energy efficiency and year-round running costs

Future retirement or family home

Many buyers purchase a property years before they intend to live in it permanently.

This approach can allow you to secure a home in a preferred location while continuing to work or live elsewhere. In the meantime, the property may be left vacant, used occasionally by family members, or let out to generate income.

Long-term practicality is often more important than immediate appeal. Features that can become increasingly valuable over time include good transport connections, access to healthcare services, manageable running costs and a property layout that can adapt to changing needs.

If the property is rented out before you move in, different mortgage and tax considerations may apply. Likewise, if it remains furnished but largely unoccupied, local council tax rules should be reviewed carefully before purchase.

Small-scale rental investment

Some buyers acquire a second home primarily to generate income, either through long-term tenants or short-term holiday lets.

This route requires a different financial assessment. Mortgage products, taxation and compliance obligations are all more complex than for a purely personal second home.

The economics of holiday letting have also changed significantly since the abolition of the Furnished Holiday Lettings regime in April 2025. Buyers considering short-term rentals should model income and costs carefully, rather than relying on assumptions based on historical tax advantages.

For those planning to build a larger portfolio, a second-home guide is only the starting point. Professional landlords should consider the wider investment, financing and ownership structures available.

Related guide: How to build a property portfolio

Once you've established the purpose of the purchase, the next step is understanding the biggest upfront cost after the property itself: stamp duty.

Stamp duty on a second home in 2026

The biggest upfront cost change facing second-home buyers is Stamp Duty Land Tax (SDLT).

From 31st October 2024, the additional property surcharge increased from 3% to 5%. This was followed by the reversion of standard SDLT thresholds on 1st April 2025, when the temporary 0% threshold fell from £250,000 back to £125,000. Together, these changes have increased the tax bill for many second-home purchases.

For buyers considering a holiday home, future retirement property or rental investment, SDLT now represents a much larger proportion of the total acquisition cost than it did 18 months ago.

SDLT rates for second homes in England (2026)

Rates correct as of [publication month] 2026. Always confirm current rates with HMRC or a qualified tax adviser before proceeding with a purchase.

Example: buying a £400,000 second home

A buyer purchasing a second home for £400,000 would pay SDLT as follows:

• 5% on the first £125,000 = £6,250
• 7% on the next £125,000 = £8,750
• 10% on the remaining £150,000 = £15,000

Total SDLT payable: £30,000

For many buyers, this is one of the most significant additional costs associated with purchasing a second property. In practical terms, the SDLT bill on a £400,000 second home is substantially higher than it would have been before the surcharge increase introduced in October 2024.

Because SDLT must be paid shortly after completion, it is important to factor the liability into your budget from the outset rather than treating it as a secondary purchase expense.

What if you're replacing your main residence?

There is one important exception.

Some buyers purchase a new main residence before selling their existing one. In these circumstances, the additional property surcharge may still apply at completion because the buyer temporarily owns two properties.

However, if the previous main residence is sold within 36 months, HMRC allows the surcharge element to be reclaimed, provided the transaction meets the qualifying conditions.

This relief is designed for homeowners moving between primary residences, rather than for buyers acquiring a genuine second home.

Useful tools and guides:

• Stamp duty calculator
• Stamp duty on a second home

The purchase tax may be the most visible cost, but for many owners the biggest ongoing surprise comes after completion: council tax.

Council tax: the cost most second-home buyers underestimate

Stamp Duty Land Tax tends to attract the most attention, but for many second-home owners, council tax has become one of the most significant long-term costs.

Since April 2025, local authorities in England have been able to apply a council tax premium of up to 100% on second homes. A second home is generally defined as a furnished property that is not anyone's sole or main residence. Many councils have chosen to adopt the premium, while others have introduced different approaches or implementation dates.

For buyers who have not revisited the market recently, this can come as a surprise. What was once a relatively modest annual expense can now have a material impact on the total cost of ownership.

How much difference can the premium make?

The impact depends on the property's council tax band and the policies of the local authority where it is located.

For example:

• Council tax Band D with an annual charge of £2,200
• Located in an area applying a 100% second-home premium

Could face an annual council tax bill of £4,400.

Viewed over a longer ownership period, the numbers become more significant. An additional £2,200 per year equates to:

• £11,000 over five years
• £22,000 over ten years
• £44,000 over twenty years

Before committing to a purchase, it is worth considering these costs alongside mortgage payments, maintenance and insurance, rather than treating council tax as a minor expense.

Are there any exemptions?

In many cases, yes.

While rules vary between councils, time-limited exceptions or discounts may apply to certain properties, including:

• Properties being actively marketed for sale
• Properties undergoing major structural repairs or renovations
• Job-related second homes
• Certain inherited properties
• Other specific circumstances defined by the local authority

The detail matters. Eligibility criteria, evidence requirements and exemption periods differ from council to council, so buyers should verify the position directly with the relevant authority before exchange of contracts.

Why this matters when choosing a location

Historically, second-home buyers often focused on purchase price, mortgage costs and potential rental income.

Council tax policy should be part of the location assessment from the start.

Two otherwise similar properties in neighbouring local authority areas may have very different ownership costs once local premiums are taken into account. This is particularly relevant in popular coastal, rural and holiday-home markets where councils have been among the most active in adopting second-home charges.

The practical approach is straightforward: before making an offer, check the current council tax band, confirm whether a second-home premium applies, and understand whether any exemptions could be relevant to your circumstances.

For many buyers, council tax is no longer an afterthought. It is now a meaningful part of the financial planning process.

Getting a mortgage for a second home

Most second-home purchases involve borrowing, but lenders assess these applications differently from a standard residential mortgage. A second property creates an additional financial commitment, so affordability checks are often stricter and deposit requirements are usually higher.

The right mortgage depends largely on how you intend to use the property.

Second-home residential mortgage

A second-home residential mortgage is typically used when the property is for your own use rather than as an investment.

This is often the most suitable option for buyers purchasing a holiday home, weekend retreat or future retirement property. The lender will assess your income, existing financial commitments and ability to afford both properties if you already have a mortgage on your main residence.

Most lenders require:

• A minimum deposit of around 25%
• Evidence that you can afford both mortgage payments
• A clear explanation of how the second property will be used

Interest rates are often slightly higher than those available on a main residence mortgage, reflecting the additional risk lenders associate with second-home ownership.

Buyers should also remember that affordability assessments are generally stress-tested against higher interest rates than those currently being paid.

Buy-to-let mortgage

If the primary purpose of the property is to generate income through long-term tenants, a buy-to-let mortgage will usually be required.

Unlike a residential application, approval is based not only on your personal income but also on the anticipated rental income from the property.

Typically, lenders look for:

• A deposit of 25% to 40%
• Rental income that covers around 125% to 145% of monthly mortgage payments
• Evidence that the rental property is financially viable

Buy-to-let mortgages generally carry higher interest rates than standard residential borrowing. In addition, most buy-to-let lending is not regulated by the Financial Conduct Authority (FCA), meaning borrowers should ensure they fully understand the product before proceeding.

Holiday-let mortgage

Properties intended for short-term guest bookings usually require a specialist holiday-let mortgage.

The lending market is smaller than for mainstream residential or buy-to-let mortgages, which means there are typically fewer products available and rates can be higher.

Lenders will often assess:

• Projected occupancy levels
• Expected annual income
• The property's location and seasonal demand
• Your experience, if you already operate holiday lets

While the abolition of the Furnished Holiday Lettings (FHL) tax regime in April 2025 has not changed the mortgage products themselves, it has altered the financial calculations behind many holiday-let purchases. Buyers should carefully review projected returns in light of the current tax rules rather than relying on figures based on the previous rules.

Using equity from your main home

Many second-home buyers do not fund the deposit from savings alone.

Instead, they remortgage their main residence to release equity, using the funds as a deposit or, in some cases, to buy the second property outright.

This can be a useful route for homeowners whose property's value has increased over time, but it is important to weigh up the broader implications.

Releasing equity means:

• Increasing the loan secured against your main residence
• Increasing monthly repayments
• Extending exposure to future interest-rate movements
• Placing more of your overall wealth into residential property

For some buyers, this can be an effective way to access opportunities without waiting years to build additional savings. For others, the increased borrowing may outweigh the benefits.

Before proceeding, it's worth modelling the full ownership costs alongside the mortgage repayments to understand how the purchase will perform over the long term.

Useful resources:

• Mortgages and finance
• How to buy another property using equity
• Mortgage calculator

Tax on rental income and the end of the FHL rule

The tax treatment of second homes used to generate income changed significantly on 6th April 2025 with the abolition of the Furnished Holiday Lettings (FHL) rule.

For years, holiday-let owners benefited from a range of tax advantages that distinguished short-term lettings from standard buy-to-let properties. Those advantages have now been removed, bringing holiday lets broadly into line with the taxation of other residential rental properties.

For anyone considering a second home with rental income potential, understanding this change is essential.

What changed in April 2025?

Under the former FHL rule, qualifying holiday lets could benefit from:

• Full mortgage interest relief
• Capital allowances on furniture and equipment
• Access to Business Asset Disposal Relief on sale (subject to qualifying conditions)
• The ability for profits to count as relevant earnings for certain pension contribution purposes

From 6th April 2025, these benefits no longer apply.

Holiday-let income is now generally treated in the same way as income from a conventional residential rental property.

This change does not mean holiday lets are no longer viable. However, it does mean buyers need to assess expected returns using the current tax rules rather than assumptions based on the previous rule.

Mortgage interest relief

One of the most significant changes affects mortgage interest.

Before the abolition of the FHL regime, qualifying operators could generally deduct mortgage interest costs in full when calculating taxable profits.

Now, holiday-let owners are subject to the same rules as individual buy-to-let landlords.

In practice:

• Mortgage interest is no longer fully deductible from rental income.
• Instead, landlords receive a 20% basic-rate tax credit on qualifying finance costs under the Section 24 rules.
• For higher-rate and additional-rate taxpayers, this can increase the effective tax burden compared with the previous regime.

Furnishings and equipment

Another important change concerns capital allowances.

Previously, many holiday-let owners could claim capital allowances on qualifying furnishings, equipment and fixtures used within the property.

Following the abolition of the FHL regime, these allowances are no longer available in the same way.

Instead, owners generally fall under the standard residential property rules, where relief is usually limited to the replacement of domestic items rather than broader capital allowance claims.

Tax when you eventually sell

The changes also affect the position on disposal.

Under the previous FHL regime, some owners could potentially qualify for Business Asset Disposal Relief, reducing the rate of tax payable on qualifying gains.

That route has now been removed for future disposals of properties that would previously have qualified as Furnished Holiday Lettings.

As a result, owners should factor the standard residential property Capital Gains Tax rules into their long-term planning.

What about long-term rentals?

For landlords letting a property to tenants on a long-term basis, the underlying position remains unchanged.

Rental profit is generally calculated by deducting allowable expenses from rental income, with the resulting profit added to your other taxable income.

The amount of tax due depends on your overall tax position and marginal rate.

As with holiday lets, mortgage interest relief is restricted to the 20% tax credit system, rather than being fully deductible against rental income.

Should you consider buying through a limited company?

For some higher-rate taxpayers, the end of the FHL regime has prompted renewed interest in limited-company ownership.

A company structure can allow mortgage interest costs to remain fully deductible when calculating taxable profits, while profits are subject to corporation tax rather than personal income tax rates.

However, this is not automatically the most tax-efficient route.

Limited-company ownership brings additional costs and administrative responsibilities, including:

• Annual accounts and corporation tax filings
• Professional accountancy fees
• Different mortgage products and lending criteria
• Potential dividend tax when profits are extracted personally

The right structure depends on your wider financial circumstances, future plans and the scale of your property ambitions. For buyers intending to build substantial rental income over time, a discussion with a qualified tax adviser before purchase is likely to be worthwhile.

The key takeaway is that the tax advantage once enjoyed by holiday-let owners has largely disappeared. Whether you're considering a coastal holiday property or a second home with occasional rental income, it's important to assess the numbers using the rules that apply today, not those that existed before April 2025.

Capital Gains Tax when you sell

Unlike a main residence, a second home does not usually qualify for full Private Residence Relief (PRR). That means any profit made when you sell may be subject to Capital Gains Tax (CGT).

While most buyers focus on purchase costs and annual outgoings, it's worth considering the tax position at the point of sale as part of your long-term planning. A property held for many years can generate a substantial gain, particularly in locations where values have risen over time.

Current Capital Gains Tax rates

For residential property, CGT is currently charged at:

• 18% for gains that fall within the basic-rate tax band
• 24% for gains that fall within the higher-rate tax band

Individuals also benefit from an annual CGT allowance of £3,000 for the 2025/26 and 2026/27 tax years.

This allowance has reduced significantly in recent years, making CGT a more important consideration for second-home owners than it once was.

Worked example

Imagine you purchase a second home for £300,000 and later sell it for £400,000.

The calculation would look broadly like this:

• Purchase price: £300,000
• Sale price: £400,000
• Capital gain: £100,000
• Less annual CGT allowance: £3,000
• Taxable gain: £97,000

If the gain were fully chargeable at the higher residential property CGT rate of 24%, the tax liability would be:

£97,000 × 24% = £23,280

The actual amount payable can vary depending on your income, ownership structure and available reliefs, but the example illustrates how quickly CGT can become a significant cost.

Don't forget the reporting deadline

One of the most common mistakes is leaving tax planning until after completion.

For UK residential property sales that generate a taxable gain, CGT must generally be:

• Reported to HMRC, and
• Paid within 60 days of completion

This is done through HMRC's online property reporting service.

Missing the deadline can result in interest charges and penalties, so sellers should prepare the necessary information well in advance of completion.

There may be opportunities to reduce your liability

While tax planning should always be tailored to individual circumstances, there are several factors that may affect the final CGT bill.

These can include:

• The timing of a sale across different tax years
• Ownership arrangements between spouses or civil partners
• Certain purchasing and selling costs
• Stamp Duty Land Tax paid on acquisition
• Capital improvements made during ownership, such as extensions or major renovations

The rules are detailed, and the availability of reliefs depends on individual circumstances. For this reason, it's often beneficial to seek professional advice before agreeing a sale, rather than after contracts have been exchanged.

What if the second home becomes your main residence?

Some buyers purchase a property as a second home and later move into it permanently.

In these circumstances, the property may qualify for Private Residence Relief for the period during which it was genuinely your main residence. However, this does not usually eliminate CGT entirely.

Part of the gain may remain taxable, reflecting the period when the property was held as a second home. The calculation can be complex, particularly where ownership spans many years or multiple properties have been used as main residences.

Professional tax advice is recommended before making decisions based on an anticipated CGT saving.

Useful tool: Capital Gains Tax calculator

The next question many buyers ask is whether purchasing through a company could improve the tax position. In some cases it can, but for many second-home buyers the answer is less straightforward than it first appears.

Buying through a limited company: when it makes sense

For many second-home buyers, purchasing through a limited company is one of the first potential solutions that comes up when discussing tax efficiency. In reality, it is usually more relevant for investors building a rental portfolio than for someone buying a holiday home or future retirement property.

A company structure can offer advantages in the right circumstances, but it also introduces additional costs, administration and borrowing considerations.

When a limited company may be worth considering

Limited-company ownership tends to be most attractive for buyers who:

• Plan to acquire multiple rental properties over time
• Expect to generate significant rental income
• Pay higher or additional rates of income tax
• Intend to retain profits within the business rather than withdraw them immediately

For these investors, the tax treatment can be more favourable than owning rental property personally.

Potential advantages

The main benefits often cited include:

• Full mortgage interest deductibility against company profits
• Corporation tax rates applying to company profits, rather than personal income tax rates
• Greater flexibility when retaining profits for future property purchases
• The ability to introduce family members as shareholders, subject to professional advice

For landlords focused on growing a portfolio, these advantages can become increasingly meaningful over time.

The drawbacks

Despite the potential tax benefits, company ownership is not without costs.

Buyers should be aware that:

• Limited-company mortgages are available from fewer lenders
• Interest rates can be slightly higher than equivalent personal borrowing
• Deposit requirements may be stricter
• Annual accounts and corporation tax returns are required
• Professional accountancy fees are often unavoidable
• Dividend tax may apply when profits are extracted personally

It's also important to remember that tax is only one part of the overall picture. A structure that saves tax on paper may still be less attractive if financing costs or administrative burdens are materially higher.

What about transferring an existing property into a company?

This is a common misconception.

An existing second home cannot usually be transferred into a limited company without tax consequences. In many cases, the transfer is treated as a sale and purchase for tax purposes, potentially triggering:

• Capital Gains Tax
• Stamp Duty Land Tax
• Legal and financing costs

For that reason, ownership structure is generally something to consider before purchasing rather than after.

The practical view

For someone buying a single holiday home, weekend retreat or future retirement property, a limited company will often add complexity without delivering significant benefits.

For investors at the beginning of building a rental portfolio, however, the decision can have long-term implications for financing, taxation and growth.

The best approach is usually to take advice before committing to a purchase, when all ownership options remain available.

The next section covers some of the most common questions buyers ask about deposits, stamp duty, council tax premiums and using equity from an existing home to fund a second purchase.

Buying a second home: Get the costs right before you commit

A second home remains an attractive option for buyers looking for a personal retreat, a future place to retire, or an additional source of income. But in 2026, the financial calculations are more complex than they were just a few years ago.

The buyers who make the strongest decisions are usually those who look beyond the purchase price and model the full cost of ownership from the outset.

That means considering:

• SDLT, including the 5% second-home surcharge
• Council tax and any local second-home premium
• Mortgage costs and deposit requirements
• Property maintenance, insurance and utilities
• Tax on any rental income
• The potential Capital Gains Tax position when selling

The reforms introduced during 2024 and 2025 have undoubtedly increased the cost of buying and holding a second property. However, market conditions are creating opportunities in some locations that help offset part of that additional burden.

Hamptons Research notes that London's housing market has underperformed many other regions over the past decade, and that slower price growth has improved relative value in parts of the capital. At the same time, Hamptons forecasts London to outperform other regions as the market enters a new growth cycle.

This is one reason why well-informed buyers are becoming more active again. Improved choice, less intense competition and stronger negotiating conditions than those seen during the market peak mean some purchasers are finding opportunities that were difficult to secure a few years ago. For buyers taking a long-term view, overall value can matter just as much as the headline tax bill.

Whether you're considering a coastal holiday home, a countryside retreat, a London pied-à-terre or a property you plan to move into later in life, the key is understanding the numbers before you make an offer. A thorough assessment at the start of the process can help avoid unexpected costs and ensure the property continues to meet your needs over the long term.

With more than 80 branches across London and the South of England, Hamptons advises buyers across a wide range of second-home markets and handles thousands of transactions each year. Our local expertise can help you evaluate not just the property itself, but the wider financial picture that comes with owning a second home.