What do clients with holiday lets need to know about tax?

This article is part of
Guide to unusual buy-to-let

What do clients with holiday lets need to know about tax?

Buying a holiday home in the UK or abroad unfortunately doesn’t mean taking a holiday from the taxman.

“Clients always need to investigate the tax implications and different mortgage options available before purchasing a home they intend to let out to holidaymakers,” says Danny Belton, head of lender relationships at Legal & General Mortgage Club.

“This must be done via a qualified tax expert, which most mortgage advisers are not, and nor do they claim to be.”

Many advisers will often already have a tax expert they use, but if you do not, then it may be worth making sure there is a tax contact to refer clients to who specialises in holiday lets across regions.

Guy Nyirenda, a partner at Coreco, confirms: “Mortgage brokers are not tax advisers, so we would always recommend taking advice from a tax adviser and solicitor who are experienced in this area, following which the broker can assist to put the right finance in place based on this advice.”

This does not mean to say mortgage advisers and brokers cannot help clients during the process of purchasing a property to let out to holidaymakers, whichever country they are considering buying in.

“There are numerous ways in which advisers can help their clients to buy a holiday home abroad and provide guidance throughout the process,” Mr Belton suggests. 

“This can be done by either raising capital on the client’s home, or other UK property, or by taking out a mortgage on their overseas property.” 

“However, with so many tax and legal matters to consider when buying a property abroad, clients would need tax advice based on UK law, as well as the law of the country they are purchasing the property in.”

Going local

Mr Nyirenda explains: “As regards assisting buying homes abroad, it does depend on the location and the size of mortgage that can dictate which lenders are in the market for that borrower. 

“There are some specialist brokers in the market now that solely advise on overseas mortgages, who have contacts with banks in different countries to arrange the mortgage. 

“There are some clients who prefer to borrow against their UK property and pay for cash for the overseas property, which most good brokers can assist with.”

He agrees it is necessary to take local legal advice in the location of the purchase, “to go through the prevalent local laws of ownership to ensure the buyer is fully aware of any risks and restrictions on the ownership”.

So what kind of tax complications might advisers come across and the kind of pitfalls they should avoid?

Jackie Hall, a tax partner at RSM, says: “UK resident individuals with holiday homes – at home or abroad – which they let out, will generally suffer income tax on income received from those furnished lettings.