In the same vein as holidaying in the UK, it is quite likely that due to Brexit, potential holiday home owners will choose to buy a property in the UK, rather than in the EU. What’s more, with increased demand for holiday lets, those who own a buy-to-let property might consider going in a new direction; going down the holiday let route instead.
Aside from the advantages of owning a holiday let in a post-Brexit UK, there are other reasons why it could be considered advantageous over buy-to-let:
- HMRC considers a holiday let to be a trading business. As such, at present, there is no limit on the amount of mortgage interest incurred that landlords can offset against their profits. For higher rate tax payers, this can significantly reduce their income tax bill. On the other hand, there have been punitive changes to the way income tax is calculated on buy-to-let properties; landlords can claim only a portion of their mortgage interest as offsetable against their profits.
- When a holiday let property is sold, there is the potential for landlords to benefit from capital gains tax reliefs, such as Entrepreneurs Relief, which could reduce the tax on the sale to 10%. There is also inheritance tax relief to consider; as the holiday let is a business property, according to HMRC: ‘Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid. Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.You can get Business Relief of either 50% or 100% on some of an estate’s business assets.’
- There are set expenses that holiday home owners can set against their gross rental income and assessment of tax. This includes costs necessary for letting out your holiday home, such as agents’ fees and marketing; mortgage interest; and general wear-and-tear costs.
To qualify for the tax benefits listed above, there are rules that the holiday let must adhere to. These span occupancy conditions and the property’s furnishings.
According to HMRC: ‘Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year. Don’t count any days when you’re staying in the property. You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.’
The HMRC also states that your holiday let must be suitably furnished: ‘There must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.’
Holiday Let Mortgages. Done.
Holiday Cottage Mortgages Limited is an Appointed Representative of Julian Harris Mortgages Limited, Julian Harris House, Musgrove, Ashford, Kent, TN23 7UN, which is authorised and regulated by the Financial Conduct Authority (FCA). Julian Harris Mortgages Limited’s FCA Register number is 304155. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk
Your home may be repossessed if you do not keep up repayments on your mortgage. Pure holiday let, buy to let and commercial mortgages are not regulated by the FCA. Non-standard applications may attract a broker fee of up to £995.