Buying a holiday let can offer tax advantages

Buying a holiday let can offer tax advantages
Buying a holiday let can offer tax advantages

HMRC has recently been targeting the buy to let market, cutting into margins by limiting interest relief and increasing capital gains and stamp duty land tax. So might it be time to think again about holiday letting? This is one area in the property market where there are still some tax advantages to be had, says Angela Mikola of Garbutt and Elliott.
What is a Furnished Holiday Let? In order to get the tax advantages, the property let must meet the following conditions: The property must be in the UK or in the European Economic Area, the property must be furnished with sufficient furniture for a visitor to occupy the property and it must be commercially let i.e. with a view to making a profit.
Certain occupancy criteria must also be met. It must be available as furnished holiday accommodation letting for at least 210 days in the year (excluding any time where you occupy the property yourself). You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (excluding any time where you let to friends and family for less than commercial rates). The total of all lettings that exceed 31 continuous days must be less than 155 days during a year.
Therefore, you could have a lovely holiday home that you could stay in for 22 weeks of the year providing the rest of the year the property is available to holiday makers and you get a 50 per cent occupancy rate.
If you don’t make the 105 days a year of occupancy then there are elections you can make that give you a couple of years of grace, or average occupancy rates if you have multiple properties. It is best to get advice on this area if you are concerned.
What are the tax benefits? Furnished Holiday Lets are exempt from the higher rate restrictions to interest relief which affects personally-owned buy-to-let properties, so they are worth considering if your property is in a popular holiday location and you have high borrowing costs.
Unlike a normal residential letting business, for capital gains tax purposes, a furnished holiday letting business is considered to be trading. This means that providing certain other conditions are met, the gain on a sale of a furnished holiday let will be eligible for entrepreneur’s relief and be taxed at 10 per cent instead of 18/28 per cent for a normal residential let property. Note that care would need to be taken if there are multiple furnished holiday properties owned and not all were disposed of.
Similarly, business asset roll over relief is available, so if you sell a furnished holiday property and reinvest in another furnished holiday let, you won’t pay the gain until the sale of the second property.
There are also other reliefs such as gift of business assets, which would also be beneficial if, for example, you gift the property to famil. This wouldn’t be available to a normal letting business.
Furnished holiday lets can also claim capital allowances on items such as equipment, fixtures and furnishings in the property. This would be of particular use if you did a complete refurbishment of the property or update certain rooms.
Finally, income from furnished holiday lets count as earnings for pension purposes which might have an impact on those who own the properties in a family situation.
Is it worth it for me? With the right property in the right location there are profits to be made and there are tax advantages to be had.
*Garbutt and Elliott, York and Leeds, www.garbutt-elliott.co.uk

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