It is imperative to keep track of your incomings and outgoings – and employing an accountant with specialist knowledge of holiday rentals is likely to be a smart move.

 

You should also be aware there are huge differences between long-term rentals and short-term rentals in the UK. For example, His Majesty’s Revenue & Customs (HMRC) treats a holiday home as a business – rather than a regular investment – which means there are numerous tax advantages when compared to standard buy to let investments. Since April 2020, all buy to let landlords have needed to pay tax on the entirety of their rental income, with the final amount calculated according to their income tax rate (20%, 40%, or 45%). The rules are slightly different for holiday home investors. One of the main advantages is that mortgage interest on holiday homes is a tax-deductible expense. 

 

Other tax-deductible expenses include: 

 

• Utility bills (energy, water, internet, TV licence, etc.)

• Booking platform fees

• Interest on loans associated with the property

• Cleaning and maintenance fees

• Advertising or letting agency fees

• Products bought for the property (cleaning products, welcome packs, etc.)

• Insurance

• Travel and subsistence (e.g. travelling to and from your holiday let to manage it)

 

There are also other tax advantages. Income generated from a furnished holiday let is classed as ‘relevant earnings’, meaning you can make tax-advantaged pension contributions. In addition, if you come to sell your holiday home, you will be able to claim certain capital gains tax reliefs, including business asset disposal relief, business asset rollover relief, and gift hold-over relief. If you share ownership of your holiday let, profits can be flexibly distributed between the legal owners for tax purposes. Consider also that the first £1,000 you earn from letting a furnished holiday let is tax-free. If you let a room in your own home, you can earn £7,500 before tax.

 

As ever, it is important to seek tax advice for the most up to date information. We recommend finding an accountant with experience of holiday homes to ensure you are paying the right amount of tax.