Holiday let mortgages and holiday home mortgages
Holiday let mortgages or holiday home mortgages can be hard to arrange and tend to be excluded from standard buy to let mortgage schemes. The main reasons are that there is no AST and the holiday rental income cannot be calculated using normal criteria. You will also find some holiday let properties have a usage restriction at the Local Authority.
However, as a whole of market mortgage broker specialising in UK holiday let mortgages we are able to arrange holiday let mortgages at competitive terms with the morgage based on the holiday property’s rental income. We also have a number of exclusive holiday let mortgage products available. Potential holiday let investors now have an easier way of owning a holiday home.
Holiday lettings is recognised as a business (generating earned income) by the Inland revenue, unlike other forms of property letting (such as buy to let) which the Inland Revenue class as investment income (unearned income). There are some valuable tax incentives for letting your property as a holiday home, but there are some specific Inland Revenue rules which you must follow to qualify. (Rules apply upto April 2010 only)
If you would like to discuss holiday let mortgages, buy to holiday let or holiday home mortgages then please call us on 0800 840 3111 or complete our online enquiry form.
For more information on holiday let mortgages and some example case studies, please visit our dedicated Holiday Let Mortgages website at www.holidayletmortgages.co.uk
The UK’s premier broker for holiday let mortgages
Tax Rules for holiday lettings ( provided by www.direct.go.uk and apply upto 2010 only)
To make sure your property counts as a furnished holiday let, it must be:
- in the UK
- available for holiday letting to the public for at least 140 days a year
- actually let as a holiday let for at least 70 days a year (and these must be commercial lets not at cheap rates to friends and family)
The holiday lets must be (both):
- short term lets of not more than 31 days
- the only lets over a period of at least seven months
Other furnished holiday let restrictions
You can’t let the property as a holiday let to the same person for more than 31 days in the year. However, if you meet all the qualifying tests in a seven month period there are no restrictions on longer lets in the remaining five month period. But these longer lets do not count as holiday lets.
Working out your taxable profit
Your profit on UK holiday lettings is worked out in the same way as for other rental income, except that you claim ‘capital allowances’ rather than the ‘wear and tear’ allowance. Examples of expenses that qualify for capital allowances include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.
You can learn more about capital allowances and working out profits for UK holiday lettings in our related article on expenses and allowances and in the land and property help notes of the Self Assessment tax return. If your property doesn’t qualify as a holiday let, you will be taxed as normal for residential property lettings.
Tax advantages of UK holiday lettings (furnished holiday let)
With UK holiday lettings, you can realise a tax advantage if you make a loss on your earnings from the property, and when you sell the property:
If you make a loss
Any loss can be offset against your other income, not just the property income, reducing your overall tax bill. Or you can carry the loss forward and offset it against future letting profits. Learn more about offsetting losses in the land and property help notes of the Self Assessment tax return (link above).
When you sell the property
You may be able to take advantage of Capital Gains Tax (CGT) reliefs, such as ‘business asset roll-over relief’. For example, if you reinvest within three years in another UK holiday letting property or certain other assets costing the same as or more than you got for the property you have sold, you may be able to defer payment of CGT until you dispose of those new assets.
You may also pay less CGT when you sell a property you have used for UK holiday letting, compared with other residential let property. This is because a UK holiday letting property is treated as a business asset and should qualify for the new entrepreneurs’ relief which has a 10% rate of tax for the first one million pounds of profit.
The amount by which the gain is reduced will depend on how long you have owned the property and how long you have used it for qualifying holiday letting.
To understand the rules fully, and find out about other reliefs you may qualify for, ask your professional adviser or Tax Office about CGT reliefs on the sale of a furnished holiday let or UK holiday lettings property.
How to declare your income and expenses
You need to declare your rental income from furnished holiday lettings using the land and property pages of your Self Assessment tax return. If you don’t receive one automatically, contact your local Tax Office, or register online at the HMRC website.
Allowable expenses for holiday lettings
Some expenses relating to the holiday let property can be taken into account to reduce your tax bill. For a detailed list of expenses you can deduct and those you can’t, see our related article and the notes to the land and property pages of the Self Assessment tax return.
What paperwork do you need to keep?
In order to be able to complete the land and property pages you need to keep:
- a note of all the rent you receive and the dates you rent out the property
- a record of your business expenses (see the Self Assessment land and property pages help notes for what counts as business expenses)
- sales receipts, invoices and bank statements
- all these records for six years after the tax year concerned
If you need help completing the pages, call the Self Assessment helpline on 0845 9000 444 (open 8.00 am to 10.00 pm seven days per week).
This information is provided as a guide only.
Always seek professional advice from a qualified tax adviser before taking any action.
The Financial Services Authority does not regulate holiday let mortgages