Buying a second home in Scotland can be an exciting investment, whether you’re looking for a holiday home in the Highlands, a buy-to-let property or somewhere for family to enjoy throughout the year. However, purchasing a second property is often more complex than buying your first home. Additional taxes, mortgage requirements, insurance considerations and legal obligations can all affect the overall cost of your purchase. Here, we’ll explain everything you need to know about buying a second house in Scotland, including second home tax, mortgages, insurance and the legal process involved.
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Second home tax in Scotland
One of the biggest surprises for buyers is the amount of tax payable when purchasing a second property. In Scotland, buyers of additional residential properties are usually required to pay Additional Dwelling Supplement (ADS) on top of any Land and Buildings Transaction Tax (LBTT) that may be due. ADS currently applies to purchases of second homes, holiday homes and many buy-to-let properties and it’s currently charged at 8% of the purchase price. When budgeting for your second home, it’s important to factor in:
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- The purchase price
- LBTT
- Additional Dwelling Supplement (ADS)
- Legal fees
- Mortgage costs
- Property maintenance and insurance
Many buyers focus solely on the purchase price and underestimate the total cost of buying a second home in Scotland. For personalised advice on the legal aspects of purchasing an additional property, speak to our conveyancing team – we’ll be happy to help.
Couples buying second properties
Now let’s look at a more complex example:
John and Melissa live in a rented house as a cohabiting couple. Melissa owns a house that her parents live in. If John buys a property in only his name, is this classed as a first home? No – because John lives with someone that owns a property and they’re a cohabiting couple, they’re seen as one person, not two, for second home tax purposes in Scotland. Although Melissa and John do not live in the property Melissa owns, it’s still classed as their first property, so any property bought by either of the couple is classed as a second home. Therefore, the extra 8% tax will be added to the cost of the property. It can be easy to be caught out by situations like this, which is why it’s so important to speak to a conveyancing solicitor if you’re considering buying a second home.
Because John lives with someone that owns a property and they are a cohabiting couple, they are seen as one person, not two, for second home tax purposes.
Although Melissa and John do not live in the property Melissa owns, it is still classed as their first property, so any property bought by either of the couple is classed as a second home. Therefore, the extra 8% tax will be added to the cost of the property.
It can be easy to be caught out by situations like this – which is why it is so important to speak to an experienced property solicitor if you’re considering buying a second home.
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How to buy a second home in Scotland
The process of buying a second home is similar to buying your first property, but there are additional financial considerations. This is the typical step-by-step process in Scotland:
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- Assess your budget and borrowing capacity
- Factor in LBTT and Additional Dwelling Supplement
- Obtain a mortgage agreement in principle if required
- Find a suitable property
- Instruct a solicitor to note interest and submit an offer
- Complete legal checks and conclude missives
- Settle the purchase and receive the keys
Working with an experienced conveyancing solicitor can help ensure the transaction progresses smoothly from offer to completion.
Do you need special insurance for a second home in Scotland?
In many cases, yes. Second home insurance is often different from standard home insurance because the property may be unoccupied for longer periods of time. Depending on how the property will be used, you may need:
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- Buildings insurance
- Contents insurance
- Holiday home insurance
- Landlord insurance for buy-to-let properties
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Mortgages on second properties
Getting a mortgage for a second home can be more challenging than for a primary residence. Lenders may require a larger deposit (often at least 25%) and may have stricter affordability criteria – they may assess your existing mortgage commitments, income and outgoings before approving a mortgage for a second property.
You’ll also need to be clear about why you’re buying the second property. If it’s a holiday home, you won’t be able to rent it out with a standard residential mortgage. You’ll need a buy-to-let mortgage which may have different terms and interest rates.
Although we’re not mortgage brokers, we can point you in the direction of trusted local mortgage advisers in the north of Scotland.
Is buying a second home in Scotland worth it?
For many buyers, a second property can provide lifestyle benefits, rental income opportunities or long-term investment potential.
However, it’s important to carefully consider:
- Additional taxes
- Mortgage costs
- Insurance
- Property maintenance
- Ongoing utility bills
- Housing market conditions
Every buyer’s circumstances are different, so professional legal and financial advice is recommended before proceeding.
Thinking about buying a second home?
If you’re thinking of buying property and need advice, contact Innes & Mackay’s specialist property law team today. We’ve been helping clients buy and sell property across Inverness, the Highlands and Scotland for more than 150 years.
