Saturday, 08 May 2021

Staycation boom could be taxing

SOARING demand for holiday lets as the UK plans for a “staycation summer” is driving enquiries for tax advice from customers considering buying a second property, Handelsbanken Wealth Management says.

The firm, which has a branch in Tuns Lane, Henley, advises would-be buyers to focus on rules that will allow them to qualify for tax breaks associated with furnished holiday lets as distinct from traditional residential lettings.

To qualify as an FHL, a property has to be let fully furnished and on a commercial basis with a view to making a profit — letting to family and friends at reduced rates does not count.

It has to be available for letting for at least 210 days a year and let as an FHL for at least 105 days a year.

It must not normally be let to the same person for a continuous period of more than 31 days.

Mark Collins, head of tax at Handelsbanken Wealth Management, said: “From a tax perspective furnished holiday lets present an unusual hybrid: not quite a business in the conventional sense, but benefiting from a number of useful tax breaks associated with business enterprises unavailable to regular buy-to-let landlords.”

FHL owners can deduct the full amount of their finance costs such as mortgage interest from their turnover to calculate taxable rental profits — unlike residential buy-to-let — and profits from an FHL can be apportioned between spouses for tax purposes in reference to the work done.

FHL profits also count as relevant earnings for contributing to a personal pension which could help reduce the tax bill.

The sale of an FHL business could qualify for business assets disposal relief, giving the owner the chance to pay capital gains tax at the 10 per cent rate, subject to the availability of their £1 million allowance.

FHL owners may also be able to gift their property to another person and claim to hold over any arising capital gain through the gift of business assets relief rules.

Owners who decide to let out homes under an Airbnb arrangement can also qualify for tax breaks.

The property allowance exempts from income tax up to £1,000 rental income a year — if gross annual property income is £1,000 or less it is not taxable.

Mark Collins added: “We always recommend seeking professional tax advice to ensure that qualifying conditions are met by the owners and CGT reliefs are correctly claimed.”

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