When investing in property in the UK, especially in holiday lets, one important question comes up: Is a holiday let classed as commercial use? The classification of a holiday let can impact everything from financing options to tax implications, and understanding the nuances is essential for both investors and property owners.
Defining Commercial Use for Properties
Generally, properties can be classified as residential or commercial, and this classification is based on how the property is used. Commercial properties are typically used for business purposes, such as offices, shops, or warehouses, while residential properties are primarily for long-term living accommodations.
Is a Holiday Let Considered Commercial or Residential?
In many cases, a holiday let falls into a unique category. Although it is used for short-term stays, it is not always classified as “commercial” in the same way a hotel or office space would be. For mortgage and tax purposes, the classification can vary:
- Mortgages: When applying for a mortgage on a holiday let, some lenders may offer residential mortgages, while others provide commercial mortgage products. Whether a lender views a holiday let as a commercial investment can depend on factors like rental income potential, the frequency of lettings, and location. If the holiday let operates similarly to a business, some lenders may require a commercial mortgage.
- Tax Implications: For tax purposes, holiday lets that meet certain criteria (such as being available for letting to the public for a minimum number of days each year) may qualify as “furnished holiday lets” (FHLs). This classification can make them eligible for business tax reliefs, including allowances on capital gains and income tax reliefs, even though they are technically not a commercial property.
- Planning Permission: In some cases, local councils may require a property to have planning permission for holiday let use, especially if it operates on a large scale. However, this does not always mean it is classed as commercial property; instead, it’s a way to regulate property use in specific areas.
How to Determine the Right Classification for Your Holiday Let
If you’re considering purchasing a property to use as a holiday let, or converting an existing property, it’s essential to consult with professionals like mortgage brokers and tax advisers. Here are some steps to help you navigate this process:
- Consult a Mortgage Broker: Since holiday lets can sometimes fall into a grey area between residential and commercial, a mortgage broker experienced with holiday let properties can help you understand the best financing options. They can advise on whether a residential buy-to-let mortgage or a commercial mortgage is more suitable.
- Speak with a Tax Adviser: For tax classification and planning, working with a tax adviser can be beneficial. They can help you determine if your holiday let qualifies as an FHL and can guide you on tax reliefs and allowances you may be eligible for.
- Check Local Council Requirements: Some local councils have specific rules for properties intended for short-term lets, especially in popular tourist areas. Checking planning requirements before purchasing or converting a property can save you from future complications.
Key Takeaways
- A holiday let is not always considered a fully commercial property but often occupies a unique category.
- Mortgage requirements may vary, with some lenders viewing holiday lets as commercial and others as residential investments.
- Furnished Holiday Let (FHL) status can offer tax advantages, treating the holiday let more like a business for tax purposes.
- Consulting with mortgage brokers, tax advisers, and local councils can clarify how to best finance and operate your holiday let.
In summary, the classification of a holiday let as commercial or residential largely depends on its use, local regulations, and the perspective of lenders and tax authorities. Understanding these distinctions helps ensure that you’re making informed decisions that align with your financial goals and legal requirements.
