Holiday lettings – A helping hand guide for landlords worried about tax
Holiday lettings in the UK and the EU carry a special classification as far as HMRC is concerned.
This gives them potentially advantageous treatment compared to ordinary residential lettings.
What are the breaks?
• If you qualify you can claim capital allowances on the items used to fit out your holiday lettings property, you can’t do this with ordinary residential lettings;
• Initial expenditure can be claimed as a pre-trading expense;
• A qualifying holiday let will enable you to make pension contributions based on the level of profits as the net income is treated as relevant earnings for income tax purposes;
• Finally when you come to sell you may be eligible for Entrepreneur Relief, Roll-over Relief or Hold-over relief from Capital Gains Tax.
• Provided you have a partnership agreement furnished holiday lettings jointly owned can be split between husband and wife as desired.
• Small business rate relief may be available up to 100% rather than council tax on the property concerned, (check with your local council).
What are the downsides?
Well VAT registration may be an issue if turnover exceeds the registration threshold of £85,000 per annum. Unlike ordinary lettings holiday lettings are treated as trading income for this purpose. So do keep an eye on turnover and bear in mind that if you are already registered as an individual you will almost certainly have to charge VAT on the holiday rent as well.
Losses cannot be offset against other sources of income; instead they are carried forward for use in future periods.
This is of course assuming the business continues.
What are the qualifying conditions?
- The property must be available for letting to the public for at least 210 days a year.
- It must be actually let for short lets of less than 30 days for 105 days or more.
- If occupied by the same tenant(s) for more than 31 days, there must be a total of no more than 155 days of longer lettings.
- Discounted or free lettings by family and friends don’t count towards these totals.
- If you are unable to meet these strict rules then in some circumstances a period of grace election can be made for up to two years consecutively.
- It is important to keep detailed accurate records of the lettings as without these claims may be denied by HMRC.
- If using a letting agent, make sure they understand the requirements too.
- The lettings must be fully furnished to enable a holiday maker to stay self-catering.
- The property must be let with a view to making a profit, so evidence of advertising or the appointment of an agency to market the property is a good idea.
How does Taxfile help?
We can tailor your annual self-assessment tax return and record keeping so you get the best out of the rules. We can attend to the elections that may be necessary.
Give our team at Taxfile a call on 0208 761 8000 to discuss your needs.
This information was correct at the time of going to press in July 2018. Guy Bridger Ltd trading as Taxfile has taken all reasonable care to ensure this information is accurate. However, no warranty or representation is given that this information is complete or free from errors or inaccuracies. This article is intended for general use only and specific advice should be sought from a tax adviser before embarking on any course of action as each individual’s tax affairs are different.