How to keep your buy-to-let property and keep your tax bill down

There is one way to keep your favourite buy-to-let and to keep your tax bill down, says Merryn Somerset Webb. Change it into a holiday let.

151109-buy-to-let
Turnyour buy-to-let intoa holiday home and you could be sitting pretty

Thinking of selling up to avoid the changes to the buy-to-let tax relief rules? You aren't alone. Now that people are starting to do the maths on the shift, and it has become clear that most of the suggested avoidance strategies won't work, stories of sellers are beginning to emerge.

However, there is one way to keep your favourite buy-to-let and to keep your tax bill down: change your long-term buy-to-let into a holiday let.

Operate as a furnished holiday let and you can offset all your expenses (wear and tear, mortgage interest etc) against the rental income at your marginal rate of tax regardless of what that is. You can also carry forward losses just as with any other trading business and claim entrepreneurs relief when you sell (cutting your CGT to 10%). Finally, you can have a go at claiming inheritance tax relief if you provide a service of any kind (breakfast etc) to your holidaymakers. How's that for a deal?

The other piece of good news is that, while holiday lets are clearly harder work than long-term lets (and so unlikely to be an option for those with big buy-to-let portfolios), the yields on offer are much higher. The only problem, says Teresa Hunter in the Telegraph, is that mortgages on holiday lets are much harder to get than those on buy-to-let properties (remember that if you change the use of your property you have to tell your lender).

If you want to make the change, you will need to go to some of the smaller lenders. Hunter suggests the Leeds Building Society for its dedicated range of holiday home mortgages, and the Newbury Building Society, which will lend up to 75% of the value of a holiday home depending on your income levels.

Recommended

What are the best ways of raising more money in tax?
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
What are the biggest mistakes investors make when it comes to tax?
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019
How tax has shaped the course of human history
Economy

How tax has shaped the course of human history

Taxation is as old as civilisation itself. But how much is too much? Dominic Frisby looks at how taxation, war and society have evolved together over …
16 Oct 2019
How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020

Most Popular

How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020
The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020