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A comprehensive package that will help you manage your buy-to-let portfolio?

If the answer is ‘YES!’ then look no further.

As The Landlord’s Accountants, THP has teamed up with Hammock – the Making Tax Digital compliant software made by landlords for landlords.

  • Free MTD Landlord Management Software
  • Your own buy-to-let specialist accountant working for you
  • Access to landlords’ advanced tax planning services
  • Preparation of annual Self-Assessment tax returns for you and your spouse/partner
  • And much, much more…

In recent years, there has been a boom in the number of holiday lets available in the UK. There are two main factors driving this. Firstly, taxation on holiday homes is less punitive than it is on normal buy-to-let homes (although this is set to change). Secondly, the COVID-19 pandemic meant many more of us took our vacations in the UK, rather than abroad. However, the taxman believes that a good number of people are letting out holiday homes without paying the correct tax. For this reason, HMRC has launched a holiday home tax crackdown.

What is a holiday home?

While there is not a separate holiday home tax, you do have to pay tax on income from these properties. For a property to be treated as a holiday let for tax purposes, it needs to fulfil various criteria. In particular, it must be:

  • Furnished
  • Let with the intention of making a profit
  • Available to let for at least 210 days in a year
  • Commercially let as a holiday home for 105 days in a year

In addition, if a property is let to the same person (or people) for more than 31 days, you must not have more than 155 days of these longer lettings over a year.

Holiday home tax advantages

If your property is a holiday home, you benefit from a number of tax advantages. Most significantly, you qualify for mortgage interest relief. This has been tapered out for normal buy-to-let properties.

In addition, you can claim certain capital allowances, including costs of refurbishing or furnishing the property. Your income from a holiday let is classed as Net Relevant Earnings (NRE) for pension purposes. Also, if you sell the property, you may qualify for certain Capital Gains Tax reliefs such as business assets disposal relief and business assets rollover relief.

HMRC holiday let crackdown

While most holiday home owners pay tax on their income, some don’t. HMRC has responded by forcing online holiday letting platforms such as Airbnb to share users’ income details. It is now stepping up the number of tax investigations into holiday let owners.

According to The Negotiator, the taxman opened almost 2,000 holiday let enquiries in 2023-24. This is a big step up from 375 in the previous year and only 95 in 2021-22. Given there are around 70,000 holiday homes in the UK, HMRC is currently investigating a significant proportion of owners.

Do I need to pay tax on my property?

If you earn more than £1,000 from letting out a holiday home that you don’t live in, that income is subject to income tax. If you live in a property and rent out a room in it, the rules are slightly different. In this case, you can earn up to £7,500 tax free under the Rent a Room scheme.

I’ve got a letter from HMRC. What do I do?

If you’ve received a letter from HMRC, there’s no need to worry as long as you have paid the correct tax on your rental income. If you haven’t, speak to one of our accountants today. They will advise you on the best way to respond in order to try and minimise penalties.

Holiday home tax changes

If you have one or more holiday lets, it’s important to know about the upcoming holiday home tax changes. These include the withdrawal of mortgage interest relief and various CGT reliefs. Certain capital allowances will also go.

These tax changes are designed to free up more properties, particularly in areas where they are increasingly unaffordable for local people. Given that your holiday home income will drop, it may be worth letting your property as a normal private rental or even selling it. To talk through your options, speak to your THP account manager today.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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    Avatar for Karen Jones
    About Karen Jones

    Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

    With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

    Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

    Karen’s specialist skills:

    • Personal Taxation
    • Tax Efficient Planning
    • Trust Administration
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