Furnished holiday lets
If you’re serious in the property world, you’ll want to know about furnished holiday lets..
Covid-19 inflated the appetite for ‘staycations’ by us Brits who were already battling with just one of the implications of Brexit, long queues at airports. Maybe, that won’t change anytime soon and, if you have doubts, pause reading this and try booking something!
For tax purposes, furnished holiday lets can be treated as investment properties when that suits, or like a trade when trading reliefs are available
Happily, they’re likely made up of residential accommodation but qualify for most of the advantages normally associated with commercial property. It’s a special tax regime normally only available to trading properties
Might be worth considering which properties in your existing portfolio could benefit?
Here are some of benefits of qualifying furnished holiday lets:
- No restriction on tax relief for interest and finance costs
- Capital allowances for fittings, fixtures, furniture
- Rollover relief on replacement business assets
- Business asset disposal relief
- Holdover relief for gifts
- Normally no National Insurance
- Profits qualify as earnings from a pension contribution perspective
If you are seriously and actively involved in your business, then it may be exempt from Inheritance Tax!
Where you own furnished holiday lets, but are not actively involved in the business, it might be worth considering an HMRC tax pre-approved, Exempt Unit Trust, which is not subject to Inheritance Tax or Capital Gains Tax. Oh, and rental income rolls-up gross
As you’ve stuck with reading this far, let’s devote the last paragraphs to ‘tax-free holiday homes’
If your furnished holiday let has never been used for any other purpose, then the entire gain arising on the gift of the property, can be held-over by a joint election of the transferor and the transferee
If the transferee then uses the property as their main residence, any capital gain arising on sale, including the original held-over gain, could be fully exempt
If you already knew all that, then have two house-points!
If you didn’t, it’s likely because your current advisor didn’t know either, so let’s talk
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