Holiday Let

[Hampyman]

We recently bought a holiday cottage last year.

We have been renting it out and I have a few questions which I am unclear about.

As yet we still need to inform HMRC about the business and ask for a tax return for the last year. We made quite a big loss from the period up to April 2010. From reading the posts here, it seems that we are entitled to use that loss against our earnings from our regular employment during that period. This would be preferable to carrying forward the loss into this year. The question I have is.

- Were we expected to inform HMRC the moment we bought the place and started letting it? And are we now prejudiced for not doing so?
- Can we still carry back the loss even if we have not yet filed for last year, or is it too late now and can we only use the loss against this years accounts?

[jeffrey]

As far as I know, you do not need to pre-notify. You do need to submit annual Tax Returns, of course, after each tax year ends.

[TaxationPete]

Was it a qualifying furnished holiday let last FY. Regards Peter

[Hampyman]

Was it a qualifying furnished holiday let last FY. Regards Peter

In what way do you mean? We were renting out from September 2009 onwards. We intended to get it let as much as possible. Although we never actually managed to fill it for over £140 days during the period. If that is what you mean?

[TaxationPete]

This will help you :
http://www.hmrc.gov.uk/manuals/pimmanual/PIM4112.htm
It sounds as though it qualified so revenue losses can be offset against normal income. HMRC are likely to question it as they were not aware of your business had commenced so be prepared to prove the qualification. Regards Peter

[Hampyman]

It sounds like I only need to prove that they were actually let for 70 days or more and this was so. It was just that we did not get over 140 in total as it hadn't been going for long enough.

[TaxationPete]

Bullet point 5 on the link regarding the 140 day rule.

• in the first year of letting: the twelve months starting with the date of the first letting.

This allows you to qualify. Regards Peter

[Hampyman]

That makes sense and yes for the first twelve months it will be over 140 days. But from the tax point of view doesn't everything cut off at April 6th 2010? Do we not just count all the income and expenses calculated for that period? In which case we made a big loss from all the investment and preparation at the beginning.

[TaxationPete]

So you are over the 140 days so it qualifies and you can then use your income upto the April 10 for your return. You use the term investment. That sounds like capital to me not revenue. You can only account for revenue, capital does not enter the equation until you dispose of the property. I thenk you need an accountant of a couple of good books on the subject. I suggest the former may be best for you at least in the first year. Regards Peter

[Hampyman]

By investment I mean expense on furnishings, repairs and re-decoration. Running around costs etc. I assumed we could recover the cost of these against our income? The costs were not fully covered in the period sept 09 - april 10

[TaxationPete]

Was this prior to your first rental. Do you have any other rental property. Regards Peter

[alex_bisgrove]

for FHL (furnished holiday lets) you can claim annual Investment allowance (AIA) of up to £50,000 p.a. spend. This can include the fitting out of the let as well as some of the capital items you purchased when you purchased the let (e.g. the heating system), this second element is an aggressive interpretation, which you may wish to get some professional advice on before claiming the loss against other income.

[property mongrel]

I hope you don't mind me asking here as I am considering buying a holiday letting property, and I wonder if I do not get 70 days commercial let in the first "year", how does this affect start up expenditure allowances for the year? Would this mean that HMRC do not consider this as a holiday letting business so any costs would not be allowable against my other business income?

If this needs a new thread I will move it?

pm

[jeffrey]

Taxpayer's financial year and the relevant letting period's commencement are entirely distinct from UK Tax Year (begins 6 April).

[Hampyman]

Was this prior to your first rental. Do you have any other rental property. Regards Peter

No other rental property. Most of the expenses were before the first rental, but some of them occurred later as we worked out what the cottage needed etc. Does it actually matter whether furnishings were purchased before or after the first rental?

[Tipper]

No other rental property. Most of the expenses were before the first rental, but some of them occurred later as we worked out what the cottage needed etc. Does it actually matter whether furnishings were purchased before or after the first rental?

Before I would hope!

Seriously what is the situation wrt capital purchases in the tax year before 'trading' started?

Are these taken into account and declared as a loss 'off-settable' against other income in the previous year?

[Telometer]

Tipper - Pre-trading expenditure is deemed to occur - for the purposes of obtaining a tax deduction - on the day on which trading commences.

Mongrel - not the tax year but in the first year of letting: the twelve months starting with the date of the first letting,
http://www.hmrc.gov.uk/manuals/pimmanual/PIM4112.htm

[property mongrel]

Thank you Telometer, it is clear to me now.

pm