Tax treatment of holiday letting income

[Grange]

Do you get the 10% W&T deduction on a FHL?

TIA.

[Grange]

As a FHL - Furnished Holiday Letting - is treated as a trade, capital allowances are available on plant and machinery.

[MrShed]

I'm confused....why did you answer your own question ?

[Grange]

Yup, spot on. Sudden realisation struck me that the W&T allowance was by concession only - through ESC B47, so CAs would apply.

[davel]

Hi,
I have owned a holiday home for 3 years and raised the finance by taking out a mortgage splitting the mortgage between my own home and the new one.(50 / 50 split). My own home did not have a mortgage before doing this so the 2 mortgages were purely used to buy the holiday home.
I am just in the process of renting it out for the first time. During the 3 year period I have spent monies on materials for basic decoration and also for new carpets etc.
I have contacted the mortgage lender and they can easily transfer the holiday home to a buy to let mortage leaving me a standard residential mortage and a buy to let.
If I do it this way can I still get tax relief on the interest on both the mortgages or should I combine the 2 mortages into a buy to let on the one holiday home ?
Can I still claim tax relief on the decorating even though some of this has been done during the past 12 months ?
P.S. even though we have owned it for this period we have never lived in it.

Thanks in advance

Dave

[Tax Accountant]

I have my main home. Thereafter, I have also owned a holiday home for 3 years. Even though we have owned it for this period we have never lived in it

So has it been left vacant continuously throughout the whole of 3 years?

If you have used it as holiday home now and then, have you looked into possibility of nominating this as your only or main residence if this is more advantageous than your actual main residence? Any such elections have to be within 2 years of having more than one residences. You may have subsequent opportunities of being able to do so. You may also be able to make a late election if you were not previously aware of the need to do so within the time limits.

I have bought the holiday home by raising the finance on both my own home (50%) and the holiday home (50%). My own home did not have a mortgage before doing this so the 2 mortgages were purely used to buy the holiday home.
I am just in the process of renting out the holiday home for the first time.

I have contacted the mortgage lender and they can easily transfer the holiday home to a buy to let mortage leaving me a standard residential mortage on my main home and a buy to let on my holiday home.
If I do it this way can I still get tax relief on the interest on both the mortgages or should I combine the 2 mortages into a buy to let on the one holiday home ?

Whichever suits you best. You will get tax relief on both regardless of whether they are amalgamated or not.

During the 3 year period I have spent monies on materials for basic decoration and also for new carpets etc.Can I still claim tax relief on the decorating even though some of this has been done during the past 12 months ?

You could not claim for any of this unless you have actually spent the money specifically for making it ready for letting.

Ramnik

.

[davel]

Great thanks for that Ramnik.

I should have told you that the holiday home is 4 hours drive to the coast from our main in land residence.

We bought it with the intention of using it 3 or 4 times a year for holidays for ourselves but due to family commitments have not had a holiday on the coast for the past few years.

I will continue with the split and just transfer the holiday home to a buy to let mortgage.

Many thanks again for this.

Dave

[Tax Accountant]

Great thanks for that Ramnik.

I should have told you that the holiday home is 4 hours drive to the coast from our main in land residence.

We bought it with the intention of using it 3 or 4 times a year for holidays for ourselves but due to family commitments have not had a holiday on the coast for the past few years.

I will continue with the split and just transfer the holiday home to a buy to let mortgage.

Many thanks again for this.

Dave

You are welcome.

But still look into the possibility of nominating this as your only or main residence if this is more advantageous than your actual main residence.

Ramnik

[00evan]

I'm thinking of buying a flat in Edinburgh which I can stay in when I visit family and friends.

To make it pay for itself (at least partly) I was thinking about doing the holiday letting thing. I have some residential lets I don't have any experience of the holiday letting market.

My main concern is what is the tax position if I stay the odd weekend or week and rent it out the rest of the time? Can I claim tax relief on insurance, mortgage interest etc for the let and void periods but not for the nights I occupy the property? Or can I only claim for the let periods?

Can I claim tax relief on council tax? I assume not.

Thanks for any help...

[tenant29]

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017930

The tax rules on holiday lettings are explained on the above website.

If you visit the flat to "clean up" in between lettings, then I am sure the tax man will not object to you charging all the expenses against the letting income.

[tenant29]

See article on Holiday lettings in the Investors Chronicle ( 4-10th Jan issue ).

Seems that you must make it available for letting atleast 140 days inthe year and let for minimum 71 days. Also no tenant can stay for longer than 31 days.

It draws attention that losses on holiday lettings can be set against income whereas losses in buy2lets are carried forward to next year.

[LucyG]

I used a guide produced by a holiday lettings company to help me focus on letting short term. I believe they're free from holidaylettings.co.uk, though it's quite a comprehensive website for tips on how to approach this side of things if you've got time to browse

[Rapesco3]

Hello,
Do you know whether you have to own the property in order to carry out a FHL and benefit from the associated tax advantages (apart from capital allowance on the asset obviously), I intend to sublet with the landlord's consent.
Also, do you know how the amortisation of the furniture is treated for tax purposes.
Many thanks for your replies

[tenant29]

Is your question about UK taxation ?

http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD30540.htm

[**Lexxy**]

(unsure if this is the right section, please feel free to move if necessary, thanks)

i've had a quick search on your very informative forum but havent really been able to find anything asked previously that would help.

as usual for us, we always seem to want to do something a bit different! so here goes...

we are wanting to buy an apartment in Cornwall (over looking a great surfing beach & loads of golf & other activities close by). it will be furnished & let it out over the
the whole year & hopefully meet the criteria for a Business (as far as HMRC are concerned).

we're hoping we will catch the main summer weeks & school holidays with a few extra weeks. we will also be using it ourselves, but only in off peak times.

the plan is to keep it for approx. 10 years, sell up in Derby & move to this holiday apartment.

in view of our 'end plan', would it even be possible to run it as a business in the proceeding years as the property wouldn't actually be 'ours'?

would it be best to just run on a personal basis (with no tax breaks) & accept that it will barely cover the mortgage for a good few years?

we have our own small business in Derby that has been running for over 20 years & i had considered running it 'within' the existing business, from what i can find out though, this wouldn't appear to be a viable option either.

i really am stuck at the moment, we seem to have had a 'brilliant' :rolleyes: idea that suits us down to the ground, but perhaps might not work in practice.

perhaps we would be better off buying something that only meets a good letting potential & then looking for something for us nearer the time when we want to sell up?

we thought we could perhaps kill 2 birds with buying our ideal place now, but i just don't know if this is viable.

so sorry for the lengthy post, especially as it's my 1st! it just seems to be the more i find out, the more questions i have!

MTIA for your time & any replies received

[P.Pilcher]

What's the problem? Acquire the property, rent it out, keep careful records of expenditure (including mortgage interest) and rental income and combine these with your current business (after checking with your accountant of course). This should keep your tax man happy and you are now entitled to claim travel expenses to Cornwall to inspect this property. Of course, you wouldn't dream of doing this if you were visiting it for a two week holiday would you?

P.P.

[Steve Sims]

Hi

I run holiday lets

First, separate them from, your other business so creditors cannot attack your assets if one or other side goes wrong!

Secondly, the property is yours. It's run as a business and has extra tax advantages due to this. Providing you meet the strict qualifying criteria, you will have no problem. As for personal use, just apportion the costs to the time you use it making sure you are still include the FHL (Furnished holiday let) criteria.

Keep the accounts separate from any other property or business accounts so you can identify the records.

You will have to record the income and expenses on the LAnd and Property form of your tax return.

If you have a wife or partner, make them a joint owner from the start to gain extra tax allowances.

Re advertising - my let is booked all but a week from June to mid September plus Christmas and Easter. I can let you have so information about low-cost advertising.

[**Lexxy**]

PP - it sounds SO simple if you put it like that! thanks (i think?!).

Steve - this was the track i was following, until i spoke to my accountant this morning & she completely confused me! i knew i hadn't got her full attention at the time & i think we were talking at cross purposes. she was going to check it out with a colleague & i'll probably go & see them later this week.

i'd be very interested in the advertising info you have? perhaps PM me, if poss?

thanks for your time

[P.Pilcher]

Lexxy:

I consider that provided you are open with the tax man and pay an accountant to do this properly, then you can get on with running your businesses and let your accountant get on with his work on your behalf. Do note however that Steve Sims is qualified to discuss accountancy matters, I am a mere landlord and thus am not!

P.P.

[**Lexxy**]

PP - 100% honest with Mr Tax Man, i'm too much of a wuss to do anything else! i'm sure i'll get some more in detail answers after i've been to see my accountant.

appreciate your comments, all LandLord input is equally relevant ;)

[Poolboy]

hi, I do holiday lets too & easily let 30-35 weeks per year.

I can´t comment on UK tax but as everyone else says just pay for someone who does - my accountant is brilliant & tells me exactly what I can claim for & how to record it. I just do it as I go along.

Anyone into holiday lets feel free to pm me, I´ve tried most of the portal websites & some are fab, others poor. I too rent holiday homes for personal use & predictably the good ones are let pretty much all year, some get very little business because mainly the owners are greedy or the houses tired.

Hope it helps, fab business, go for it, never looked back

[Deb20]

Can someone clear up a query I have regarding if a loss is made? I am thinking of purchasing a holiday let with my husband. I am currently a non taxpayer and he is a higher rate payer. If the let makes a loss, can that loss be offset against his income, and if so does the property have to be run as a joint business with expenditure etc split between us? What if the property is run by me only?

I hope you understand where I am coming from! As a non taxpayer it clearly makes sense for me to run the business and any income would either not be taxable or would be in the lower rate. But if I make a loss I have very little earned income to set it against although I do have some, and I also have unearned income eg interest, dividends etc.

[Telometer]

You cannot have it both ways! Whilst I appreciate that it would be ideal for you to obtain the profits and for him to obtain the losses, I am sure that you will appreciate that tax just does not work that way!

[Deb20]

Ha ha yes I know what you mean! However although I am not very very old(!), when I set up a business many years ago, that was exactly what happened as married couples were treated as one so to speak in taxation rules.

Anyway, to clarify further, if we ran it as a joint business and it made a loss then would 50% of a loss be able to be claimed against my husbands income?

I also assume that I could claim a loss against my income but if I don't pay tax it merely reduces my declared income but doesn't actually result in a tax refund because I never paid tax in the first place?

[Steve Sims]

Why can't this couple buy the holiday let as tenants in common with the wife taking a minority percentage of ownership so the husband can set off the losses against tax on his income?

You will note that the income shifting proposals for the next budget exempt property investors and that you have missed an ideal tax reducing opportunity here that potentially could cost these people a lot of unnecessary higher rate tax.

The whole point is with holiday lets is you can have your cake and eat it - the income and expenses are treated as property investment income while the asset is treated as a business asset with the advantages of loss shifting....and don't forget entrepreneur's relief on disposal that considerable reduces CGT.

[Telometer]

Why can't this couple buy the holiday let as tenants in common with the wife taking a minority percentage of ownership so the husband can set off the losses against tax on his income?

Perfect solution.

An equally perfect solution is that W takes majority percentage so that profits are tax free.

However commercial considerations come in as they cannot know at the start of the letting time (without a crystal ball) whether it will be making losses or profits, they therefore cannot know who should own it. That is the cake they cannot have and eat.

What OP was hoping for was a situation in which W could claim the profits
As a non taxpayer it clearly makes sense for me to run the business and any income would either not be taxable and H could claim the losses.
and it made a loss then would 50% of a loss be able to be claimed against my husbands income?

I would love to think a clever partnership agreement could be drafted whereby H is obliged to make good losses in the P, but W is entitled to all the profits; but I fear that is pure fantasy.

[andyp]

Would appreciate if anyone could clarify the following for me...

I began renting out a holiday home that meets all the requirements of that definition (furnished, more than 140 days etc etc) on October 1st 2008. I read in the HM property notes that the relevant tax year is 12 months after first rental. Does this mean that I declare no profit/income in 2007/8 tax return and that I do in 2008/9? If that is the case, do I declare 12 months worth in 08/09 (ie Oct - end Sept), or do I have an "18 month" period?

[mazzster]

I presume you're renting this out as an individual (ie not through a limited company). In that case your first taxable accounting period will be from 1/10/08-5/4/09.

You therefore declare nothing relating to this on your tax return to 5/4/08 (which I imagine you're submitting nowish).

You should have chosen a year end (your choice). The tax return to 5/4/09 will include only the 6 months from 1/10/08-5/4/09 regardless of this year end, and you then get into overlap rules which you don't need to worry about for a long while yet (and I can't be bothered to go into them here).

[King_Maker]

I presume you're renting this out as an individual (ie not through a limited company). In that case your first taxable accounting period will be from 1/10/08-5/4/09.

You therefore declare nothing relating to this on your tax return to 5/4/08 (which I imagine you're submitting nowish).

You should have chosen a year end (your choice). The tax return to 5/4/09 will include only the 6 months from 1/10/08-5/4/09 regardless of this year end, and you then get into overlap rules which you don't need to worry about for a long while yet (and I can't be bothered to go into them here).

I don't believe the "overlap" rules can to a property rental business, as it is taxed on a strict fiscal year basis.

[TaxationPete]

If you had informed HMRC that you were now a landlord then they will send you a SA with property pages for you to complete a SA for FY 08/09 as the business started in Oct 08. Regards Peter

[Esio Trot]

Not widely reported in the media (apart from the BBC in their business pages) are huge changes to the tax treatment of holiday lets income.

http://news.bbc.co.uk/1/hi/business/8013022.stm

Firstly, landlords will no longer be able to write off "trading" losses from second homes against other taxable income. Secondly, capital allowances and capital gains benefits are also going.

This will make a number of people quite apoplectic - especially if they have structured future income based on current rules.

[Telometer]

All the EU's fault, I'm afraid.

HMRC were forced to bring all EU properties into the scheme, about which they were very unhappy, therefore forced to abolish the scheme.

[jeffrey]

All the EU's fault, I'm afraid.

HMRC were forced to bring all EU properties into the scheme, about which they were very unhappy, therefore forced to abolish the scheme.
See? More EU interference.

Jeffrey (UKIP member)

[islandgirl]

Look on the bright side...less cottages more business for the ones that remain! As most cottage rental comapnies seem to be greedy grasping money grabbers anyway do it yourself and save their fees - you will be better off all round: more weeks let and at a higher profit. Won't even notice the changes perhaps!

[mind the gap]

Look on the even brighter side : maybe more whole-year/long term rental properties, or even affordable homes, will come onto the market in rural areas, instead of being inhabited for little over a quarter of the year by holiday makers then remaining empty for the other nine months.

[islandgirl]

Take your point MTG. However occupation rates are totally different depending on where cottages are located. In the lakes they are often as high as 40-50 weeks a year. There is a difference between a holiday property which at least brings money into a place - people use the shops and restaurants etc - and properties left empty most of the year. I am guilty on both counts, sorry.

[invosoftben]

I posted an article on this not long after the budget:

http://www.invosoft.co.uk/post/2009/04/25/2009-budget-is-a-blow-for-holiday-home-owners.aspx

I'm interested to find out how this will affect holiday home owners in real-terms.

Do many of you actually manage to offset "losses" against your tab-bill?

Will the loss capital gains tax relief for new purchases mean a decrease of capital going into the holiday home market, or maybe the market is already over saturated?

[alex_bisgrove]

I'm looking to buy a property to use as a holiday let and undersatnd the tax treatment is changing at the end of 09/10 tax year. Looking through the net I can't see how the change is managed. In my case I will be buying beds, tv, white goods..... for which I can claim a capital allowance, 50% in the current year (I think), should be about £3k in total. Then next tax year I have to choose to either claim 10% of rental charges as wear and tear or claim the items when they need changing (assuming no betterment and the old ones have zero value when replaced).
Is this logic right ?

I already have an unfunished let property that I claim for items as they die (new washing machine here new oven there), but I want to use the 10% of rentals method for the new property (as I hope it will be greater).
Can I mix these methods of claims assuming I always use the same set of rules over time for the same properties or do I have to stick to one method for both my different properties?

[Gordon999]

check out the HMRC website for info on furnished holiday lettings

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4120.htm

[Tipper]

I think the above link is for the current, ie old system for holiday lets, the issue being that the system changes in April 2010.

We too are just converting a house + flat to 3 holiday lets and came to the conclusion that as we had no turnover in 2009/10 then there was nothing we could claim back and so almost all expenditure is capital and the furnishings are not allowable either!

Having bitten that bullet we then looked a VAT and also came to the conclusion that it was not worth going there.

What we need is several hundred (conservative?) MP's to own holiday lets and then perhaps the system would revert to the old system which counted holiday lets as similar to small businesses with similar allowances against tax.

If there is a way of getting something back from the taxman then can somebody advise what to do?

Grrrr.....Can't even get lower VAT for creating a dwelling because we are going to use it for business!!!

[alex_bisgrove]

thanks Gordon999, but I could not find anything to do with the transition rules.

So I claim my 50% capital allowances this tax year and have a £1,500 asset pool to carry forward to next tax year, when the rules change and I can no longer claim capital allowances. Can I then just choose either the 10% of rentals for furnished letting or pay to replace (but no claim for betterment) when things need to be replaced. This sounds too good to me in that I can quickly cover off my capital cost by making best use of the fact that the rules are changing.

[Ben Tayo]

See the link http://www.hmrc.gov.uk/manuals/pimmanual/PIM3200.htm
Also note that the Annual Investment Allowance is available so that if relevant, 100% of any amount below £50K can be claimed against 2008/9-10 FHL income that meet the IR rules http://www.hmrc.gov.uk/manuals/pimmanual/PIM4112.htm
You can claim 10% and renewals for fixed items such as kitchens etc.. for furnished and renewals only for the unfurnished. Whichever basis you choose for furnished property, you must use it consistently.

[Tipper]

Surely if you don't let it during this financial year you can't claim anything because you won't have qualified, ie 70 days minimum?

[alex_bisgrove]

Tipper, I think part of the qualifying rules state over a 12 month period, so long as it will let for 70 days in the first 12 months (and another few minor details) I'm OK and as I will not be doing my tax return until next October, I should have the answers then anyway.

On the toipic of Capital allowances, can I claim the labour cost (assuming I pay someone to do it) for things like redecoration or it is only for the physical things like carpet in termns of a capital allowable expense for holiday lets ?

[Deb20]

I purchased a holiday home in 2009 with the intention of running it as a holiday letting business. I am now just about to complete my first year and have come across a potential problem regarding the ownership and tax situation.

It is a leasehold property and the tenants named on the lease are myself and my husband. The property is 60% in my name and 40% in my husbands, as far as land registry is concerned (I believe - but am not clear about as my solicitor wasn't very helpful). I run the business and expected therefore to declare the income as 100% mine (I am a basic rate taxpayer and my husband is higher rate).

I have now been led to believe that I may need to change something in order for this to happen - otherwise the income will be split between myself and my husband which was clearly not the plan. The question is what do I need to change and how?

[jeffrey]

So far as concerns HMLR, no- the registration of ownership does not take account of beneficial shares' quantities.
Is there therefore a separate Trust Deed recording the 60-40 split?

[Deb20]

I was asked the question by the solicitor at the time of purchase, and informed him that we were to be tenants in common with the 60/40 split. I assume this to mean that the Land Registry deeds record this? I have also just found the lease and it states:
Declaration of trust where there is more than one person comprising the Tenant:
The Tenant is more than one person. They are to hold the Property on trust for themselves as tenants in common as to 60% to "x" and as to 40% to "y"

[jeffrey]

Never 'assume'!
What the lease says will do as an informal Trust Deed/Declaration. There should be a corresponding Restriction registered at HMLR; is there?

[Telometer]

It sounds as though you need a beneficial split of 1:99 in order to achieve the tax result you desire. Talk to your solicitor again.

[jeffrey]

It sounds as though you need a beneficial split of 1:99 in order to achieve the tax result you desire. Talk to your solicitor again.
If the 60:40 proportions are to be altered to 1:99:
a. a new Trust Deed will certainly be required (to alter what the Lease says); and
b. the HMLR Restriction may need revising too.

[Deb20]

Thank you. I will go back to the solicitor. It's just a shame he didn't even think to mention this at the time of purchase, as I clearly stated I was to run it as a business and of course you can't ask the right question if you don't know what the problem is that lies ahead!

[Deb20]

Right. I have just spoken my solicitor and it seems as if I was never sent all the relevant documents such as land registry etc which would explain why I wasn't clear about things. It seems the way forward is to do another declaration of trust - hopefully 100% to me and 0% to husband. It seems more sensible than doing silly sums every year in my accounts to give him say 1%.

Then I believe, if I understand correctly, that I have beneficial interest on the rental income, but the legal interest in the property remains as per the 60/40 split for tenants in common. I'm still not clear where that 60/40 split is on paper, apart from on the lease, but with a solicitor that cannot explain things at all clearly, I give up until I can get hold of all the documents, or at least ask for an explanation in writing.

Thanks for your help.

[jeffrey]

Get a solicitor who's up to the job and can explain clearly, then.

[Tipper]

I read in some election blurb (yeh, I know, sad or what? :o) that the conservatives forced the government to change their intentions for taxing holiday lets soi as to allow the 'finance bill' to be passed before the election.

Is this so?

Does it mean the alignment of tax treatment with the EC announced from April 2010 has not gone through or have I missed something?

[Schofields]

The proposed tax change was abandoned, from the Telegraph (Sorry, can't post link to article.)


The proposed new tax is one of three that Labour has been forced to abandon following negotiations to fast-track the Finance Act – which introduces the laws necessary to enact the budget – through Parliament ahead of the general election. The Conservatives refused to sanction the fast-tracking of the legislation unless the three tax changes were dropped.



However, CGT is set to rise on second homes.

[JoJones]

The abolition of the special rules for furnished holiday lettings have been dropped from FB 2010. The alteration of the Finance Bill came after the Conservatives threatened to delay the progress of other legislation, including the contentious Digital Economy Bill, if three planned tax changes were not withdrawn (one of which being FHLs).
This means that the existing rules under which certain holiday lettings are deemed to be a trade will continue. At the time of writing it looks as though this will include holiday lets in the EEA as well as in the UK but further clarification of the detail is expected. If a Labour government is re-elected this measure may be reintroduced, although whether it will apply for the current year remains to be seen. The Conservatives are clear that they will retain the special treatment if they are elected.
Regards

[Tipper]

Thanks for that.

I'm now back to where I was 1 year ago when I bought my development property to turn it into FHLs.

We had come to the decision, afterthe 2009 intended tax changes that all our expenditure 'developing' the property into FHLs was to be offset against CGT, now it looks like we can 'run the business and claim other expenses such as 15000 miles of travelling too!

What I need now is a tax accountant who knows how best to manage the tax situation wrt to developing and running a FHL business in the first few years and the best way to split those costs be they capital or expenses between income and CGT gains in future years......any takers?

[unmissable]

Please could one of you experienced posters answer a really easy question?

I recently started letting out a holiday cottage. I understand that my income is counted as received when I provide the service (ie the week of the Let) but what about the deposit? My agents are passing on all deposits to me straight away, but what do I put on my tax return? Eg recieve a deposit in March 10 for let in August 10.

On the one hand I can declare the income in 10-11 tax year since the actual let is in August 10, or have I provided a service by reserving and guaranteeing a particular week when I take the deposit and therefore put the deposit as income in 09-10 tax year?

I am sure this is not a new question and very simple, but I am struggling to find the answer and any help would be appreciated.

[islandgirl]

we consider that the deposit is not ours as it is still potentially refundable (if the holiday maker cancels) We do all our own lets and do not use an agency. We therefore declare the full amount received when the balance payment is made.

[Meme]

Please could one of you experienced posters answer a really easy question?

I recently started letting out a holiday cottage. I understand that my income is counted as received when I provide the service (ie the week of the Let) but what about the deposit? My agents are passing on all deposits to me straight away, but what do I put on my tax return? Eg receive a deposit in March 10 for let in August 10.

On the one hand I can declare the income in 10-11 tax year since the actual let is in August 10, or have I provided a service by reserving and guaranteeing a particular week when I take the deposit and therefore put the deposit as income in 09-10 tax year?

I am sure this is not a new question and very simple, but I am struggling to find the answer and any help would be appreciated.

Generally the principle is that it is when you earn the money that is relevant- so presuming the deposit is part payment for the actual stay it would count in the August 2010 tax year. In the same way as if you were paid the whole balance in March by someone staying in August.

(although maybe you could argue the providing a service thing depending on the circumstances and nature of the deposit but I think that would be unusual)

[Moderator1]

Several separate but overlapping threads have been merged into this thread.