Our Place In The Sun
Let’s explore what you might need to consider if you own a holiday home which you let out for short periods to different people.
It is a topical issue, as what are known as ‘furnished holiday lets’ currently covers anywhere in the EU – from a fishing cottage in the Scottish Highlands to a place in the sun on the Mediterranean. Obviously this could all change in a few weeks……
Whilst the Income Tax rules are not as generous as they once were, the key benefit of qualifying as a furnished holiday let is the tax relief available on fitting out the property. We all know that it can cost a small fortune in terms of good quality furniture, kitchen equipment, bathroom fittings and so on. For a ‘standard’ rental property there is no tax relief on the initial cost of these.
As an example, on a modest fitting out cost of £20,000, the tax relief on the first year on the cost of this could be as high as £9,000.
Capital Gains Tax is the second area where favourable rules apply. Usually the sale of property is just subject to Capital Gains Tax as usual, even if you use the proceeds to buy another property. So a gain of £100,000 would give a tax bill of up to £28,000.
However, if it qualifies as a furnished holiday let, then the tax bill could reduce to £10,000 – a massive saving. Alternatively you might invest the proceeds in another qualifying property and not pay any Capital Gains Tax at present.
There are also potential Inheritance Tax savings. If it can be seen that the furnished holiday let is run like a trading business, it will qualify for ‘Business Property Relief’. This means that the value of the property would not be taxed on your estate. On a £500,000 property, the Inheritance Tax saving would be an eye-watering £200,000.
As you would imagine, there are rules as to what qualifies as a ‘furnished holiday let’, or as a trading business. You might need to slightly change how you let out the property to get the best possible result.
Planning is required so please call Des on 0330 024 0498 or email email@example.com to arrange a free of charge initial consultation.
Author: Andrew Wilshaw
Director at Barringtons Chartered Accountants