Can you claim mortgage interest on holiday lets?

Can you claim mortgage interest on holiday lets?

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This information is for illustrative purposes only, it’s important to speak to a tax specialist to get the most up to date and accurate information.

If you dream of a second home by the beach or in a historical town, then a holiday let mortgage could help you make it a reality. A holiday let mortgage is ideal for those looking to buy a property to let out to tourists on a short-term basis. There are also a number of tax benefits.

Can you claim mortgage interest on holiday lets? 

The HMRC views holiday lets as a trade rather than investments. This means mortgage interest costs can be offset against any income for tax purposes. If you have used a mortgage or loan to pay for a holiday let, you can claim the interest of repayments back against your tax. 

Holiday lets count as a business which means the expenses from your rental income can be deducted before you are taxed. This includes the interest you pay that on your mortgage. For buy-to-let properties, on the other hand, the law has changed and this is no longer the case.

In order to claim mortgage interest on holiday lets, your property needs to qualify as a “furnished holiday letting” according to guidelines. It needs to be a furnished property, in the UK or Europe, and pass certain occupancy conditions.

Can mortgage interest be claimed if you own a holiday let? 

You can claim mortgage interest if you own a holiday let. You can offset your mortgage interest costs against any rental income. If you own a holiday let you will be entitled to a specialist type of mortgage. The mortgage lender will base the amount on an income projection figure, rather than multiplying your rental income. 

This is what makes a holiday let slightly different from a buy-to-let property. You will need to be able to cover the property while it’s not being rented as well. Your earnings will be taken into account too. 

Any additional tax or business benefits?

With a holiday let you will get additional tax and business benefits. You will be able to claim tax relief on a number of expenses. These include accounting fees that you paid in order to prepare your holiday home business accounts. 

You can also claim tax relief on advertising fees. If you have used brochures or local publishings to advertise your property, you can claim this back. If you have insured your holiday let you will be able to claim this against tax.

There are also other benefits to your business that you can claim. You can apply for tax relief on maintenance and utilities. Any gas or electricity can be claimed back against tax. If you need cleaning or gardening services, for example, these extra costs can be claimed against tax. This will help you to provide a more welcoming environment for your guests. 

Are there any pieces of information you should be aware of?

In order to be entitled to claim against tax, there are a couple of important rules. You are only able to claim commercial expenses. If you use your holiday let yourself, you won’t be able to claim on utilities and cleaning. 

As long as your expenses are commercial, you can claim on several general costs. These include cutlery, bed linen, and towels. You can build up your garden area and claim expenses for plants and equipment for families.

Another rule is that you cannot claim back the invested capital. It isn’t possible to claim back the cost of construction, or converting the property into a holiday let. Can you claim mortgage interest on holiday lets? The answer is yes, but only for commercial purposes.

To qualify as a furnished holiday let, you must let your property commercially for a minimum of 105 days a year. It must be available to let for at least 210 days a year. There is a maximum stay of 31 days. 

One other important point to remember is the deposit. For a mortgage on a holiday let, you need a 25% deposit. The minimum deposit is higher because there is more risk involved than with standard residential properties. 

The lender will assess whether your holiday let will generate rental income of between 125-145% of the interest you need to pay on your mortgage. Remember you’ll be able to offset your mortgage interest payments against your rental income for tax purposes.

Any law or governance you should refer to on the subject?

For more help and information on furnished holiday lettings, refer to the HS253 government guidelines. These are 2018 tax rules outlined for holiday lets.

Information was correct at time of publishing but can be subject to change