Holiday Rentals News - Tax advice for beating the credit crunch using your home

Tax advice for beating the credit crunch using your home

Homeowners looking for a way to protect themselves from the credit crunch can use their property to their advantage, new advice suggests. Tax relief on mortgage interest and entering the holiday lettings market are among the suggestions from The Times.

There are some practical ways of making your finances tax-efficient and reducing the impact of record inflation. Advice from the paper includes:

• Entering the holiday lettings market. Use your second home to your financial advantage and set it up for "furnished holiday letting". This is an ideal solution for those who don't want to sell their property in the current market. The property must be available to let for at least 140 days in the year and let for a minimum of 70. Holiday homes benefit from favourable Capital Gains Tax (CGT) and Inheritance Tax (IHT) treatment.


• Set your holiday home up as a business. Run your holiday letting business for at least one year and you'll qualify for "entrepeneur's relief". This was announced in November 2007 and means the first £1m of capital gains are taxed at 10 per cent, instead of the usual 18 per cent. After two years, the property could also fall outside of your estate for IHT purposes.


• Avoid Capital Gains Tax on your second home. Profits made on the sale of your holiday home or buy-to-let property are subject to CGT at 18 per cent, although profits made on your main residence are free of tax. There are ways you can help yourself. If you lodge a "principle private residence" (PPR) with the taxman within two years of purchasing a second home, you can vary this choice in the future in favour of another property. This means that if you make a healthy profit from selling your holiday home you can vary your PPR from your main residence to your second home, and then change it back again immediately once the sale has been completed.


• Getting tax relief on your mortgage interest. This is particularly effective if you run your own business. If you have a mortgage, your spouse can sell you shares equal to this amount in your private family company. You can take out a loan to cover this cost and use the proceeds from the share sale to clear your mortgage. Because you have borrowed money for acquiring shares in a private family firm, the full amount of interest on the borrowing qualifies for tax relief at your highest marginal rate. This means interest payments can be set against your other income, which could make you big savings. There is no CGT to pay on share disposals between husband and wife.

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