Exception to the s24 Tenant Tax loophole?

Exception to the s24 Tenant Tax loophole?

9:45 AM, 27th November 2017, About 5 years ago 15

Text Size

I have just been looking at the wording of the s24 legislation (Tenant Tax) and I noticed that one of the sub-sections state:

(4)An amount borrowed for purposes of a property business is not a dwelling-related loan so far as the amount is referable (on a just and reasonable apportionment) to so much of the property business as consists of the commercial letting of furnished holiday accommodation.

So I conclude that if a property is purchased with a commercial loan as a furnished holiday letting then it would not be affected by the Tenant Tax.

However, there is nothing I can see that then makes the property subject to the Tenant Tax if it is subsequently changed so as to be let as a standard AST (as it would still meet the criteria of having been purchased for the purpose of a holiday letting).

I guess the commercial lender would have to agree the change from a furnished holiday let to a standard AST letting, the same as when residential owners get consent to let from their mortgage providers, but if such a consent was granted by the commercial lender, then the property would presumably remain exempt from the s24 Tenant Tax???

I’ve no idea if this could work in practice, it just seemed a bit of a potential loophole in the s24 legislation.



Neil Patterson

9:51 AM, 27th November 2017, About 5 years ago

Interesting question Robert.

Would consent to let on an AST change the nature of the loan in the eyes of HRMC?

Consent to let on a different basis to the original contract is normally only given for 1 or maybe 2 years so most likely you would end up needing to remortgage anyway and incur the costs of doing so, which could offset any tax gain.

I have not heard of anyone testing this though.

Dr Rosalind Beck

12:52 PM, 27th November 2017, About 5 years ago

I like this way of thinking. I have just passed it to Alan Ward and others at the RLA and asked them to look into it.

Ray Davison

13:33 PM, 27th November 2017, About 5 years ago

Interesting! However even if it works you can bet on the regulations being changes as soon as HMRC become aware of it.

Neil Arnold

13:45 PM, 27th November 2017, About 5 years ago

But surely you'd need to fall under the requirements of running the property as a holiday let, i.e. availability and pattern of occupation in order to satisfy HMRC?

Dr Rosalind Beck

16:54 PM, 27th November 2017, About 5 years ago

Alan Ward at the RLA has said he will check on this.

Robert M

19:50 PM, 27th November 2017, About 5 years ago

Reply to the comment left by Neil Patterson at 27/11/2017 - 09:51
Over the years, many thousands of people who have purchased a property with a residential mortgage (not a buy to let mortgage) have had a change of plan and have decided they wanted to let out their property, e.g. due to financial issues, moving for work, changes in family size, changes to relationships, etc, etc, and rather than sell their property they have sought consent to let. When they do this, the lender usually agrees the consent to let as they make money by keeping the person as their customer (so long as the loan/mortgage is still paid each month). The consent to let, from my experience, is rarely if ever subsequently withdrawn. The mortgage itself remains a residential mortgage, and never becomes a "buy to let" mortgage.

Applying the same logic, if someone obtained a commercial loan for a holiday let, and used it for this purpose, but at a later date they had a change of plan and decided they wish to let the property as a standard AST letting, then presumably the lender would not want to lose the business (the interest they earn on the loan) so it would be in their commercial interest to grant the "consent to let". The loan would remain as a commercial loan, it would not suddenly change to something else, e.g. a "buy to let" mortgage, and as a commercial loan obtained for the purpose of buying a holiday let, it would not fall within the criteria to be subject to the s24 Tenant Tax.

The nature of the loan, and the PURPOSE of the loan, does not change, just because the lender subsequently decides to allow the borrower to do something, e.g. let out the property on an AST. The s24 tax only applies to loans taken out for the PURPOSE of letting a property (not as a holiday let).


21:11 PM, 27th November 2017, About 5 years ago

Good thinking!

The obvious strategy would be to give it a try and simply set aside some surplus cash for a year to see if HMRC lets it past. If it does, then happy days, but if not, settle the full amount of tax.


7:49 AM, 3rd December 2017, About 5 years ago

Surely if a Residential Property is changed to a buy-to-let, then the owner would want to start claiming the mortgage interest as a business expense from the time it is let and this would then be subject to the new tax laws as soon as the mortgage interest is claimed. It may then follow that if a Property is bought for the purpose of holiday letting then it is changed to a buy-to-let, the mortgage interest would be claimed from the start as a business expense and when it changes to an AST rental, the tax situation would change with it? Telea

Robert M

16:48 PM, 3rd December 2017, About 5 years ago

Reply to the comment left by T J at 03/12/2017 - 07:49Hi T J
If the property was purchased as a furnished holiday let, it would still be a business asset and the loan interest would be deducted from the gross profit, the same as any other business loan (and the same as it was for buy to let properties before the introduction of s24 Tenant Tax. Thus, the loan interest payments would be claimed as a business expense from the start, and any change to the type of letting would not affect the type of loan or the purpose of the loan, so even if the method of letting changed to ASTs, I believe it would still not bring the lending within the necessary criteria for the application of the Tenant Tax.

Dr Rosalind Beck

17:51 PM, 3rd December 2017, About 5 years ago

One problem is that many of us have long-term loans and we did not buy our properties with the aim of letting them as holiday lets. One way around this might be to sell properties to each other, remortgage and tell the lender we are going to let our new (almost swapped) properties as holiday lets, get insurance for holiday lets etc., even rent them briefly as holiday lets and then revert to our normal BTL lets. I don't know if that makes sense as a strategy for some.

1 2

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now