Stamp Duty Cuts

The temporary stamp duty cut could save buy-to-let investors thousands of pounds. Chancellor Rishi Sunak has said these buyers will only pay the tax at a rate of 3% on the first £500,000 of a property’s price. Previously, landlords have paid an extra three percentage points in stamp duty on top of the normal rates when they purchase a buy-to-let property.

For someone purchasing a buy-to-let property worth £150,000 this tax break would save £500 on their stamp duty.  For a property worth £500,000 the tax bill would fall from £30,000 to £15,000.  The stamp duty holiday lasts until March 31, 2021 and applies to homes purchased in England and Wales.

Staycation boom

Thanks to the coronavirus pandemic, more Britons are holidaying at home. Overseas travel restrictions have sparked a rise in demand and prices for UK holiday rentals in holiday hotspots such as Devon, Cornwall and the Isle of Wight. There has also been a rise in short breaks with online bookings. Many investors have spotted this trend and are moving their money over to holiday lets.

There was a sharp rise in the number of investors seeking to buy holiday let properties during July 2020, according to new research by Knowledge Bank, a mortgage searching bank. “Holiday lets” were in the top five most searched for criteria. Other searches suggest growing interest from novice landlords as the other most searched for term after “limited company” were “first time landlord.”

Holiday lets are different form ordinary buy-to-let mortgages as the loans only allow the properties to be let out on a short-term basis.

Tax breaks

While the once generous tax relief on ordinary buy-to-let mortgages have reduced in recent years, furnished holiday lettings still enjoy the old perks. Furnished holiday lets (FHL) are classed as a business rather than an investment by HM Inland Revenue. Landlords of holiday lets can deduct the full mortgage interest payment and certain other expenses from their pre-tax profits, including the cost of furniture, equipment and fixtures. This includes kitchens.

If you let properties that qualify as FHLs:

• You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
• You are entitled to plant and machinery capital allowances for items, such as furniture, fixtures and equipment

Seek advice from a qualified accountant. For more information see the Government website

Holiday let mortgages

Typically, investors seeking a mortgage to purchase a holiday let property will need to provide a large deposit of around 30%. So, if you wanted to buy a house worth £350,000, you would need to stump up at least a £105,000 deposit. This is because lenders see holiday lets as relatively high-risk.

Holiday let rentals are much higher than standard, longer-term rentals. For example, a well-appointed cottage or flat in a holiday hotspot that would rent out for £800 per month as a long-term let, might charge £1,000 per week in the summer. There are times, however, when it will not be fully booked and rents drop out of season.

For a property to qualify as a holiday let, it must be available for renting at least 210 days in a year. And the rental needs to be actually let for 105 days (15 weeks) of the year, for periods shorter than 31 days.  That leaves 155 days of year when you and your family can enjoy your holiday home.

Holiday let legislation

It may sound obvious, but holiday accommodation needs to be kept in a safe and habitable condition for guests.  Fire safety, gas safety, electrical safety, furniture, swimming pools and hot tubs are all covered by statutory rules and regulations to ensure minimum safety standards are met.

It is vital that you ensure all electrical equipment is safe and in good working order before and during a short-term holiday let. This applies to both fixed and portable electrical appliances. Many holiday providers hire an electrician to perform portable appliance tests (PAT) and Electrical Installation Condition Reports (EICR).

Landlords with holiday lets can claim a wider range of tax reliefs but there are fewer low-deposit mortgages available. Nevertheless, analysts expect the interest in UK holiday lets to continue to grow as more countries are hit with travel restrictions due to coronavirus.