Should I buy the family home in Shropshire as a holiday let and continue to rent where I am living?

I am currently renting a property and was looking to buy in the area I live in Warwickshire. 

However, after recently losing a family relative I have the option to buy the family home in Shropshire. A property that has been in the family for almost 400 years.

It would not be practical to relocate there, but I don’t want the house to leave the family. 

I am not in a position currently to purchase two properties. The area is very popular for holidays and I had thought about using the property for holiday lets or as a buy to let.

Does it make sense though to rent a property that I live in while owning another I then let out? 

Really unsure what the best course of action is and hoping you may be able to offer some advice. C.R.

Ed Magnus of This is Money replies: This is one of those questions that is tough to answer.

Although buying the family home may not be the logical or most practical course of action, a house that has been the family for 400 years will have particular sentimental value.

It may of course turn out to be a sound investment so long as your heart is truly in it and you believe you can make a success of it.

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Practically speaking, there are mortgage and tax implications that need to be considered first before making any decision.

For example, if you buy in your own name you will be taxed on any rental income on top of whatever you already earn.

If you’re already a higher rate taxpayer, that could mean waving goodbye to 40 per cent of any profit made.

You could also find yourself liable for capital gains tax (CGT) were you to ever sell the property in the future.

If you instead buy a home in Warwickshire where you currently live, you would be entitled to principal private residence relief when you sell, which in most cases, will shield you from CGT.

It’s also worth remembering that the tax perks for holiday let businesses were on the chopping block earlier this year when the then Chancellor, Jeremy Hunt,  pledged to abolish the furnished holiday lettings (FHL) tax regime from April 2025. 

Legislation has now been drafted that has confirmed how the changes will be introduced by the new government.

It essentially means holiday home firms will lose a number of tax benefits, and find themselves on a more level playing field with buy-to-let landlords.

You may also want to speak to a tax advisor to see if there is any benefit of buying the property via a limited company, rather than in your personal name. 

Deciding whether to purchase as a holiday let or as buy to let will also depend on what makes most sense from a commercial perspective.

A holiday let in the right location can certainly be more lucrative than a buy to let, but it will also come with extra admin and cost to manage it.

Limited company surge: More than two-thirds of existing buy-to-let companies were set up between 2017 and 2023 when various  tax changes were introduced or phased in

The average property in Shropshire has an asking rent of £1,085 a month, according to Rightmove.

But of course, the average rent will depend on the precise location, the type of property and the number of bedrooms.

In Ludlow, a popular market town in south Shropshire, the typical property rents for £1,053 a month whereas in Oswestry in north Shropshire, the typical rent is £800.

The town of Shrewsbury in Shropshire offers an indication of the potential financial upside of holiday lets.

The average long term rental property in Shrewsbury is being advertised for £1,116 a month. That equates to £13,392 a year.

Meanwhile, in Shrewsbury, the average annual turnover of a holiday let was £24,700 in 2023, according to Sykes Holiday Cottages – which is above the UK average.

Holiday let hotspot: In Shrewsbury, the average annual turnover of a holiday let was £24,700 in 2023, according to Sykes Holiday Cottages – which is above the UK average

Of course, this may have more to do with the quality of homes on offer, but nonetheless it suggests that letting out a family home to holidaymakers in certain parts of Shropshire could well be a profitable long-term investment. 

For expert advice, we spoke to Chris Sykes, technical director at mortgage brokers Private Finance, Mark Barret, a chartered accountant at Property Tax Advice Ltd, James Shaw, managing director at Sykes Holiday Cottages and Nicholas Mendes, mortgage technical manager at John Charcol.

What are the mortgage implications? 

Chris Sykes replies: We can completely understand not wanting the family home to leave the family, and fortunately there are lots of finance options in both the buy-to-let and holiday let space that can help, including using inherited equity as a deposit if sufficient, and owning properties outside of where you live is no issue

Both holiday let and buy-to-let mortgages are generally based on the rental income that the property will generate and are widely available as long as figures stack up.

With a holiday let, many mortgages also let you or your family use the property in periods where it is vacant, so family can still enjoy it that way.

Mortgage expert: Chris Sykes, technical director at mortgage brokers Private Finance

Nicholas Mendes adds: It’s important to understand the key differences between a buy-to-let mortgage and a holiday let mortgage, as they come with different criteria. 

While both are designed for renting out property, the key distinction lies in how the property is rented. 

A buy-to-let property is typically rented out for longer periods—usually six months to a year or more—offering a more stable income stream. 

In contrast, a holiday let mortgage is intended for properties rented out for shorter stays to multiple guests throughout the year.

Although there isn’t usually a huge difference in the offers for buy-to-let and holiday let mortgages, some variations do exist. 

For example, buy-to-let mortgages may require a smaller deposit, sometimes as low as 20 per cent, whereas holiday let mortgages generally start at 25 per cent. 

Additionally, buy-to-let mortgages tend to have more straightforward income calculations, as rental demand and prices are typically stable over time. 

For holiday let mortgages, lenders typically assess affordability by looking at expected rental income across different seasons—high, medium, and low rental periods throughout the year. 

If you plan to block off certain times of the year for personal use, this could lower the expected rental income, which is something to keep in mind when discussing terms with a lender.

In terms of tenancy arrangements, buy-to-let mortgages are typically offered on an Assured Tenancy Agreement (AST), where the property is rented for a fixed term, such as six to twelve months. 

On the other hand, a holiday let mortgage permits short-term rentals to various tenants, allowing you to rent out the property for shorter periods multiple times throughout the year.

What are the tax implications? 

Mark Barret replies: You have to be wary of the HMRC rules about the number of days the property has to be available to let in the year (210 days). 

The property can also not be let out to holiday makers for longer-term occupation (typically more than 31 days per stay) for more than 155 days during the year.  Your accountant will give you the full guidance on this. 

Tax expert: Mark Barret, a chartered accountant at Property Tax Advice Ltd and a fellow of the Chartered Institute of Management Accountants

When looking at any plans for property letting, you really need to consider your long term plans.

For example, if there will be multiple holiday lets, then VAT on the rental income becomes an issue. 

There are ownership structures that will aid you in minimising your VAT on the gross income, but that requires detailed and specific tax advice.

Regardless of whether you rent out the home as a buy-to-let for tenants or holiday let, if you own the rental property in your own name, then it will mean that you would not be able to claim ‘first time buyers relief’ on stamp duty for your own personal own when you buy it, and indeed, you’ll pay increased stamp duty (SDLT) on your home if purchased after the investment property is owned.

With any type of rental income, you will be required to register for self-assessment.

If you are already registered then you would need to notify HMRC of a new source of income by 6 October. 

You will pay income tax at your marginal rate on the profit from your letting, and when the investment property is sold, then any gain in value from when you owned the Shropshire property would be taxed under Capital Gains Tax.

Is the holiday let a good idea? 

James Shaw replies: Staycations have been growing in popularity over the past decade, with an 8 per cent year-on-year growth in bookings in 2023, and this year demand for UK holiday lets has remained high. 

This has resulted in the average annual income of a holiday let owner increasing. If you turned your hand to holiday letting, you could tap into this demand and reap the benefits.

As holiday lets are identified as businesses, you could also be eligible for a number of tax benefits if you take the leap into the market. 

The type of holiday let tax relief opportunities include mortgage interest tax relief, Business Rates relief, and Capital Gains tax relief, all of which will significantly reduce the taxes payable on your holiday let profits and return on your investment.

Holiday let expert: James Shaw , managing director at Sykes Holiday Cottages

As well as tax benefits, you could also tap into a number of travel trends to boost your income potential. 

This year, we’ve seen a rise in travellers booking staycations last minute or choosing long weekend breaks over seven-night stays. 

If you choose to pursue holiday letting with your family home you could cater to this demand, which could then result in a higher occupancy rate.

Although there are pros and cons to both running a holiday let and a buy-to-let, there are better financial advantages to holiday letting and overall, short term lets can be a great investment.

Nicholas Mendes adds: Firstly, it’s not uncommon to rent the property you live in while owning another as an investment, so your situation isn’t unusual. 

Retaining the family home while generating rental income could be a practical solution. 

Given the property’s location in a popular holiday area, turning it into a holiday let may offer higher returns than a traditional long-term rental. 

Expert: Nicholas Mendes, mortgage technical manager at broker John Charcol

However, holiday lets often require more active management, with fluctuating occupancy and ongoing maintenance, whereas a buy-to-let tends to provide more stability with long-term tenants.

Chris Sykes adds: Holiday lets can be challenging as there are high seasons and low seasons so you need to budget more and have local contacts or services who can look after the property. 

They are a popular investment these days and we’ve seen plenty of clients do very well with holiday lets. 

Any final words of advice?

Nicholas Mendes replies: An important factor is your long-term strategy for the family home. 

Although relocating there might not be practical now, renting out your current residence while keeping the family home could make sense if you eventually plan to live there or pass it down to future generations. 

However, you’ll need to consider the financial commitments involved in maintaining two properties, such as mortgage payments, upkeep, and insurance.

Ultimately, the decision depends on what feels right for your circumstances, both financially and emotionally. 

Renting out the family home, whether as a holiday let or a buy-to-let, allows you to keep the property in the family while generating some income, which could help make your current living situation more manageable.