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TAX TIP TUESDAY: Landlords Can Navigate B2L Issues with a Holiday Let

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

You are likely all too aware of the constraints landlords have been subjected to over the past few years. Between rescinding tax relief and decreasing profits, many are moving their businesses to regions where the potential profit is higher (creating a whole separate set of concerns), while others are thinking of abandoning the sector altogether.

There is one other option still to be explored in the realm of hospitality, that still provides tax breaks and promise of profits: holiday lets.

Don’t let the term fool you – holiday lets aren’t reserved solely for ideal vacation spots like the beach or the countryside – you can set up a holiday let anywhere there’s a need for short-term rental properties. And while there are other rules you need to obey for this particular sector, you are not subject to the overwhelming limitations ordinary buy-to-let landlords have to endure.

Buy-to-let vs holiday lets – is there a clear winner?

In an accounting comparison by the Telegraph on two identical properties with the same annual rental income yield (£15,000), the clear winner was the holiday let.

Even though the income generated was the same, the ordinary buy-to-let property had to contend with a hefty tax bill and paltry interest relief credit and ultimately fell short.

Holiday lets also have breaks and other opportunities for savings such as capital allowances claims for heating, air conditioning, and kitchen and bathroom equipment. Owners are also able to fully offset the mortgage interest before tax on their property – a luxury that is simply not allowed on buy-to-let properties.

At the end of the analysis, taking into consideration everything that affected both types of property – such as mortgage payments, repairs, cleaning, and agency fees – and adding on costs only incurred by buy-to-let properties – such as interest payments that can’t be written off, taxes, and other expenses – the cash position of the buy-to-let property left much to be desired.

In the end, they actually reported an annual loss of a couple hundred pounds while the holiday let profited in the thousands.

However, it’s not all sunshine and roses…

After reviewing the comparison, the additional rules holiday lets need to abide by seem insignificant. Rules include that a home needs to be:

  • furnished and available to let for at least 210 days a year
  • occupied by a tenant for at least half that time – 105 days
  • not let by one person longer than 155 days at a time.

There is some risk involved considering a landlord must find tenants happy to rent for no more than six months at a time and any time the property is vacant won’t garner any profit.

Mortgages might also be difficult to obtain for these types of lets, and you’ll need to seek out regional building societies and specialist providers for options. When you do find a deal, terms might be stricter than the usual buy-to-let mortgage, but often being able to write off that interest will cushion the blow.

Are you considering a buy-to-let or holiday property?

Speak to a mortgage broker today if you are interested in purchasing a property for either a traditional buy-to-let endeavour or a holiday let. We’ll help you weigh up the pros and cons and provide you with the support and financial planning assistance you’ll need to jump-start your business.

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