10th May 2017
Owners of properties that are let as furnished holiday accommodation can benefit from a range of tax reliefs. These reliefs are based on the lettings period, rather than the use of the property, so more properties may be eligible for these tax reliefs than is commonly thought.
At its simplest, this type of property let is treated for most tax purposes as a trading venture. There are some exceptions to this, which is why it is always advisable to talk to a tax specialist to ensure you are working within HMRC rules.
The letting rules are relatively simple: the property must be available for commercial letting to the public for at least 210 days in a 12-month period. It must actually be let for at least 105 days in that 12-month period. The first of these rules is reasonably easy to comply with, and the second is usually met by those owners actively marketing a holiday let, but may be more difficult for those simply letting a property in a non-holiday location. It is usually advisable not to let your property for more than 31 consecutive days, as this can reduce the opportunity for tax relief.
Owners may also be unaware that they can claim capital allowances for all the equipment used in the holiday let. For new equipment purposes, such as white goods, furniture and any moveable items, the cost can be up to £200,000, which can be deducted from the net profits of your trading business for that period.
There are also advantageous capital gains tax (CGT) benefits for owners of furnished lets:
When you sell your furnished holiday let, any capital gain arising can benefit for ‘roll over relief’ where the proceeds are reinvested into another property intended as a furnished let, or into any other asset used for a trading purpose. There are various rules applied to this relief, which your tax adviser can explain to you.
Furnished holiday lets are also excluded from the restriction to mortgage interest relief which came in on 6 April.
Your property is treated as a business asset, so if you give the property away – maybe as part of your inheritance tax planning – the capital gain can be held over to the recipient, which results in no CGT arising on the gift.
Entrepreneurs’ relief is also available on the disposal of a furnished holiday letting business. This reduces the rate of CGT to 10%. This relief is complex, so we would recommend you talk to a tax adviser to see whether your business qualifies.
Usually, this type of property is not exempt from inheritance tax, although there are situations where some tax relief may be available.
To ensure you are benefitting from the various reliefs available to furnished holiday property owners, please call us on 01252 711244.