Question: I’m thinking of buying a property and renting it out as a holiday home. I understand that these holiday lets are treated slightly differently by the taxman, compared with an ordinary buy-to-let property. But what about the tax treatment of mortgage interest? Is it the same whether it is a holiday let or not? Didn’t the Budget change things?
Answer: You are quite correct that the recent Budget proposed changes to mortgage interest relief for buy-to-let properties. With effect from April 6, 2017, finance costs for landlords of residential property will be limited to the basic rate of income tax. This restriction is being phased in over four years, so from April 5, 2020, all finance costs incurred by a buy-to-let landlord will be given as a basic-rate reduction only.
This would affect landlords with total income above approximately £50,000, assuming the Government increases the basic rate threshold as currently intended.
It will certainly have a big effect on many landlords — including those overseas — owning London property, where the rent roll for a single property can easily exceed the basic rate income tax threshold.
However, the HMRC Budget notes specifically exclude furnished holiday lettings from these new rules. As long as the property you are thinking of buying satisfies all the criteria to be a furnished holiday letting, then you should be unaffected by these new restrictions.
What's your problem?
If you have a question for Fiona McNulty, please email firstname.lastname@example.org or write to Legal Solutions, Homes & Property, London Evening Standard, 2 Derry Street, W8 5EE. We regret that questions cannot be answered individually but we will try to feature them here. Fiona is legal director in the real estate group of Foot Anstey LLP in Exeter (email@example.com)
These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.