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TAX ON HOLIDAY
LETS
Letting properties for holidays is treated as a
special case compared with residential lets.
Concessionary status exists for properties
which qualify as Furnished Holiday Lets (FHLs).
These have more relief attached to them and are therefore advantageous
in terms of tax.
Changes from 6 April 2011: Up to 5 April
2011, losses on FHLs can be set against any other income the owner has
(e.g. PAYE, self-employment, etc). From 6 April 2011 FHLs losses cannot
be set against other income. However they can go against other UK FHL
profits in the same year or be carried forward against following years’
FHL profits.
Changes from 6 April 2012: it will be
more difficult to qualify for FHL status.
To qualify the property will have to be
available for at least 210 days (30 weeks) per year and must actually be
commercially let as holiday accommodation for 105 days (15 weeks).
This compares with 140 and 70 days under the old rules.
We estimate that approximately 25% of our
properties would no longer qualify for FHL status.
(based on 2005-09 bookings).
Benefits of FHL status: it may be
possible to claim for additional capital allowances such as new fixtures
and fittings for the property, administration/professional fees and
travelling expenses. It may also be possible to claim for the initial
costs of setting up the property for holiday letting.
Losing FHL status: this is not the ‘Tax
Bombshell’ that some newspapers have claimed.
Owners will not lose all of their tax concessions from a holiday
property’s income.
If a holiday cottage cannot be classified as
FHL under the new rules, it reverts to being classed as income from
property with the following consequences:
1. Expenses
which can be claimed are slightly more restricted.
2. Owners
cannot claim capital allowances on new furnishings and fittings. However
they have the choice of claiming either:-
a. 10%
of the rental less any council tax and water rates each year as an
expense in recognition of the wear & tear on the furnishings and
fittings.
or
b.
“renewals basis”. owners do not claim the 10% allowance above but
instead claim the full cost of any replacement of furniture & fittings
e.g. carpets, dishwashers, etc.
3. If the
property is owned by someone who dies, it would fall into their estate
at a full valuation and there is no relief given to it. Inheritance Tax
could be chargeable on the whole value. There is also no Entrepreneur’s
Relief for Capital Gains Tax.
Note: 2a is likely to be the more
advantageous in the majority of cases, as the 10% allowance can be
claimed every year, whether or not you have had any other expenses (e.g.
gardener, caretaker, repairs, travel, but not renewals or improvements).
With option 2b, an owner would get full tax
relief on the cost of any repairs, e.g. decorating, mending a boiler or
replacing a scratched worktop. They will get tax relief on the whole
cost of any furnishings they buy. However, they would not be able to
claim for major work that could be considered by the Inland Revenue to
be an improvement or alteration to the fabric of the property.
Tax laws have many ‘grey’ areas and are open
to interpretation, so the advice we have given, or may give in the
future, is for guidance only. It is always advisable to seek
professional advice. |
