Get ready, holiday let landlords, because the taxman is coming for you! From April 5th, 2025, the rules for how you declare your holiday let income are changing. These changes could hit your pocket hard, so it’s crucial you understand what’s happening and how to prepare.

Get Ready for a Tax Squeeze!

The government is cracking down on holiday lets, including Airbnbs, bringing them in line with regular residential lettings. This means no more special treatment when it comes to tax. Here’s what you need to know:

• Mortgage Interest Deductions: Gone! You won’t be able to deduct all your mortgage interest costs when calculating your taxable profits. This means less of your holiday let income will be tax-free.
• Capital Gains Tax Relief: Out the Window! Some of the benefits you’ve enjoyed, like business asset disposal relief and business assets rollover relief, are being scrapped. This means you’ll likely pay more tax when you sell your holiday let property.
• Pension Contributions: No Longer Count! Profits from holiday lets will no longer be considered “earnings” for pension contribution purposes. This could mean you’re missing out on a valuable tax break.
• Tax Relief on Domestic Items: No More! You’ll no longer be able to claim tax relief on the original cost of domestic items purchased for your holiday let property.

What Can You Do?

Don’t panic! You can take steps to minimise the impact of these changes. Here are some tips from the experts at Handelsbanken Wealth & Asset Management:

1. Split Your Ownership:

If you own your holiday let jointly with a spouse or civil partner, the new rules mean you’ll be automatically taxed on 50% of the profits, regardless of your actual ownership split. This could push you into a higher income tax bracket. To avoid this, consider altering the beneficial ownership of your property. Apply to HMRC to change the split of income from the property for tax purposes.

2. Maximise Your Pension Contributions:

If your holiday let is your only source of income, maximise your pension contributions this tax year. This will allow you to bring forward extra tax relief from the previous three tax years.

3. Gift Your Property:

Consider gifting your holiday let to a family member before the new tax year. This will allow you to claim capital gains tax “gifts holdover relief.” However, there are some caveats. You may need to time-apportion the gain if the property hasn’t qualified as a short-term holiday let, and stamp duty could be an issue. If you live in the property, you must pay open market rent to ensure the gift is effective for inheritance tax purposes.

4. Sell Up:

If you’re thinking of exiting the market, consider selling your holiday let this tax year to secure business asset disposal relief at the current 10% capital gains tax rate.

Don’t Be Left in the Cold!

These changes are significant and could have a major impact on your holiday let income. It’s essential to seek advice from a financial professional to understand your options and make informed decisions about your property.

Important Note: The information provided in this article is intended for general informational purposes only and should not be considered as professional financial advice. It is highly recommended to consult with a qualified tax advisor or financial planner for personalised guidance based on your individual circumstances.