If you are an expat looking to invest in property in the UK, you might be looking to use it in a number of different ways:
- as a second or holiday home for use by you and your family on trips to Britain;
- as a buy to let investment through which you earn a rental income from tenants who are in more or less continuous occupation of the property; or
- as a holiday let, where a succession of tenancies are held on the kind of short-term basis commonly used by holidaymakers and other visitors to the area in which your property is located.
Clearly, purchases of both buy to let and holiday let properties represent essentially commercial propositions in which your aim is to ensure that your income from the rent charged exceeds all the costs of buying and maintaining the premises.
Since there are decided benefits in purchasing property for the second of these purchases – for use as a holiday let – this kind of investment may repay closer examination.
Buy to let investment
Investment in buy to let property in the UK has enjoyed a boom in popularity and financial success in the past few years. In 2015, however, the British government introduced significant changes to the tax regime affecting ownership of such property and the commercial viability of many buy to let businesses.
Some of the impacts of the tax changes were detailed in a report by the International Business Times on the 31st of March 2015. The chief of these being landlords’ loss of the entitlement to tax relief on mortgage interest paid on loans for the purchase of buy to let property.
The change in the tax regime begins to take effect in 2017 and is intended to be fully implemented by 2020.
Holiday let investment
Untouched by these changes, however, is the continued entitlement to tax relief on the interest paid on mortgages for furnished holiday lets.
The tax authorities recognise that these are still commercial mortgages, but that the accommodation is let furnished (sufficiently to allow the property to be occupied to a reasonable standard), but on a short-term basis of no longer than 31 days at a time, yet with the aim of letting the property for at least 210 days of the year.
Although the property needs to be let for at least two-thirds of the year, therefore, owners are free to use the remainder of that time as a second or holiday home for their own use if they so choose.
These tax benefits significantly improve the commercial viability of investing in holiday let accommodation in the UK. As a result, the prospects for arranging a mortgage for such purposes is also improved, including holiday let mortgages for expats.
Even so – and despite the favourable tax regime which still applies to furnished holiday lets – securing a holiday let mortgage may prove difficult. Many of the leading, regular lenders, for example, may be reluctant to grant such loans and the market is therefore typically served by smaller, potentially less well-known mortgage lenders.
To access these more difficult to identify lenders, therefore, you might want to engage the services of a specialist broker.