Are we about to see a boom in holiday let properties?

Over the last few years the Government have introduced legislation to discourage ownership of buy to let properties, starting with the additional stamp duty (extra 3% on the entire purchase), to the most recent tapering of interest rate relief on loans. (See Langdowns DFK guide to the new interest rules). A number of larger owners of buy to let portfolios have attempted to limit the interest restriction by transferring their properties into limited companies. This process, like any driven by tax, has its pros and cons and each individual’s circumstances must be considered before diving in and incurring significant cost, as well as potentially crystallising some large tax liabilities. It’s fair to say that buy to let properties have lost some of their shine as an investment, which is exactly what the government wanted!

However, many of us still like the idea of investing in property and the perceived certainty of bricks & mortar, so is there an alternative that has been somewhat overlooked? Well this author has been thinking about ‘furnished holiday lets’ (“FHL”) for more than a year now. For a number of years we have seen more and more people holidaying at home, the ‘staycation’, and on 24th June 2016, the day after the EU Referendum, this was only likely to increase as your pound bought fewer Euros, Dollars or Yen. Cynically, this accountant was talking to a client on the morning of Friday 24th June saying “…anyone owning a furnished holiday let will be putting up their rents today, as they’ve become cheaper to foreigners holidaying here and people looking for a staycation will have to accept the cost!”

So you ask; what are the tax benefits of a furnished holiday let? There are actually quite a few that have been around for years, but the prospect of managing a FHL have often put people off. However, you may now be interested in taking advantage of them… Firstly, a FHL is taxed as though it is a trade, this brings with it a wider range of allowances and tax deductible expenses, in particular certain capital costs in fitting out a FHL. One of the major benefits of the FHL is the continued relief for the full loan interest paid, which is being restricted for normal buy to let properties. Finally, as a trade the potential future sale of the property would actually qualify for ‘Entrepreneurs Relief’, this means that instead of paying 28% on the capital gain you only pay 10%! (There are also potential inheritance tax benefits to FHL ownership, but we’ll leave that for another day.)

So with the desire to own property, the weakness of the pound and changes in taxation could this tempt more of us to invest in holiday properties in Devon or Cornwall, or even the bright lights of Blackpool? Predicting the future is nearly impossible, but could global warming make our beaches and holiday homes the envy of Europe…

(This article does not constitute investment advice. You should always speak to a tax specialist as the benefits vary from individual to individual. This article is written based on the tax legislation at the point of publishing the article.)