Holiday Lets avoid Section 24 mortgage interest relief reductions

by Malcolm Jones

14:06 PM, 7th June 2017
About 2 years ago

Holiday Lets avoid Section 24 mortgage interest relief reductions

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Holiday Lets avoid Section 24 mortgage interest relief reductions

The increasing tax burden on Buy to Let is encouraging many landlords to investigate alternative ways of investing in property and an increasingly popular option, particularly with the rise of Airbnb, is to purchase property as a holiday let.

Running a holiday let is treated by HM Revenue & Customs (HMRC) in the same way as a trading business and so there are different tax considerations to a Buy to Let investment and no mortgage interest relief reductions under Section24.

As with Buy to Let, it is important to seek professional tax advice about your investment, but there are some basic guidelines to be aware of.

In order for a property to qualify as a holiday let the property:

  • Must be available for at least 210 days per year
  • It has to be actually let for at least 105 days
  • There can’t be any periods of longer term accommodation (31 days at a time) that add up to more than 155 days.

Like Buy to Let, holiday lets will carry a 3% surcharge on Stamp Duty Land Tax, but returns on successful holiday let investments are generally higher than Buy to Let. A report by holidaycottages.com in 2014 found that the average annual rental yield achieved by a holiday let was 8.8%.

Choosing the right lender is particularly important when it comes to purchasing a holiday let as lenders can impose restrictions around the use of the property. For example, some holiday let mortgages do not allow owners to stay in the property and some lenders take a dim view of marketing the property through Airbnb.

It is possible for lenders to take a commercial approach to holiday lets, giving customers greater flexibility and the choice to roll up some or all the interest, which can help investors to plan for seasonal rental voids or manage cashflow while they renovate their property.

For example, a recently completed remortgage on a holiday cottage in Penzance, Cornwall. The property was valued at £625,000 and the lender was able to lend £345,000 to redeem the outstanding balance of the existing mortgage and release equity to fund improvements, with interest rolling up over the two year term.

If you do need any assistance with funding a holiday let or any type of property loan please complete the contact form below and we will be happy to help.

Contact Malcolm Jones

Commercial Finance, Development Funding and Bridging Finance
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