Finance
Holiday Homes and Taxes
by Ian Williams FCA TEP, Campbell Dallas Chartered Accountants
Qualifying furnished holiday lets in the UK offer investors greater tax breaks than holiday homes abroad. Such properties in the UK benefit from a wealth of tax reliefs, steer clear of currency fluctuations and avoid the complexities of dealing in a foreign language and an unfamiliar legal jurisdiction. More and more people are investing in holiday homes as part of their retirement planning. However, buyers should be aware that there may be significant tax advantages to purchasing in the UK. By contrast, if you purchase abroad, even if you are resident in the UK, you may have to pay tax in the country in which the property is located and UK tax on the foreign income, claiming double taxation relief. Depending on the country that you choose, you may have a hefty tax bill to pay if the tax rates exceed the rates in the UK.
Tax reliefs only available to furnished holiday lets in the UK
Income from letting of property is normally treated as investment income for tax purposes. By contract, rental income and expenditure in relation to furnished holiday lettings is treated as a trade for most tax purposes, with beneficial results.
Profits
Expenses such as rent, rates, insurance and utilities, repairs and renewals, gardening and cleaning, legal and professional costs and capital allowances can all be deducted against income in calculating the tax bill, provided they are wholly and exclusively for the purpose of the letting business.
Capital gains tax
For capital gains tax purposes there are numerous CGT reliefs available, for example:
By qualifying as a business asset the property is eligible for the more favourable rates of taper relief for disposal by an individual or partnership.
Following two years of ownership the effective rate of CGT may be as low as 10% on a disposal. By contrast, non-business assets have to be held for 10 years or more in order to obtain the maximum rate of non-business taper relief which is currently 60%.
You may be able to rollover your gain on other business assets by investing in a furnished holiday let, obtaining a tax deferral.
Should you want to give your furnished holiday let to another family member no capital gain will be triggered if you qualify and elect to apply holdover relief. The recipient will suffer the gain instead, if they dispose of the property in the future.
Inheritance tax
In some circumstances, furnished holiday lettings will qualify for Business Property Relief ensuring no inheritance tax arises. This, however, very much depends on whether the property actually constitutes a business.
The qualifying criteria for a holiday home to qualify as a furnished holiday letting are:
- Situated in the UK.
- Available for commercial letting as holiday accommodation for periods of at least 140 days in a year.
- Be actually let for at least 70 days per year.
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