Furnished holiday lets - hidden tax gems - 06/07/2017
The merits of furnished holiday lets can often be overlooked by landlords and yet really are hidden tax gems as they offer more tax reliefs than residential rental properties, providing strict availability conditions are met.

Income Tax Reliefs
When calculating taxable profits from your furnished holiday lets business, loan interest is a deductible cost.  Compare this to residential rental property which now has a phased restriction to tax relief on interest for higher rate taxpayers, starting 6 April 2017 and scaling in up to 2020. 

Furnished holiday let profits count as relevant earnings for pension contributions.

Capital Gains Tax Reliefs
For capital taxes, the furnished holiday let is treated as a business and can qualify for Entrepreneur’s Relief if certain conditions are met. This means that capital gains on the disposal of furnished holiday lets could be taxed at 10% instead of the capital gains residential property rate of 28%. The potential tax saving of £18,000 per £100,000 of gain is clearly appealing.

In addition, Rollover Relief and Holdover Relief can be available on the disposal of furnished holiday let properties.

Inheritance Tax Reliefs
This is a complex area, but depending on the services provided, the Business Property Relief may potentially be available on furnished holiday letting businesses.

Furnished holiday lets fall within the scope of VAT and if the total business turnover reaches the VAT threshold (currently £85,000) then the business must register for VAT and charge VAT at the 20% Standard Rate.  The market, of course, sets the acceptable price for the property, but 1/6 of the booking price is lost in VAT; to counterbalance, Input VAT can be recovered on costs associated with the property.  VAT should, therefore, be a key consideration when looking at uses or ownership of a potential furnished holiday let property.

If you have a suitable property, please contact us to discuss how these rules could affect you.

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