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Essential furnished holiday lettings tax resources & guides

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If you are lucky enough to own your own holiday let, there have been some important updates by HMRC on the furnished holiday lettings tax rules that you should be aware of. The purpose of this page is to provide a useful resource of all the latest news and rules relating to holiday let taxation.

Furnished holiday lettings tax resources

It’s surprising how many holiday let owners seek tax advice on internet forums where it can be assumed that the advice will be from third parties who are unqualified in holiday let tax. For a definite answer, a qualified accountant who specialises in furnished holiday lets should be consulted.

An excellent resource is the holiday letting tax page provided by HM Revenue and Customs which provides advice on the current tax rules, advantages of FHL, qualifying criteria, profit & loss and completing a tax return.

To summarise;

Rules for furnished holiday lettings for the 2012-13 tax year (from 6 April)

For a property to qualify as a furnished holiday let, it must be:

  • in the UK or EEA
  • furnished
  • available for commercial letting to the public, as holiday accommodation, for at least 210 days a year
  • the accommodation must actually be let as holiday accommodation for at least 105 days a year – the rent must be charged at market rate and not at cheap rates to friends and family
  • a short term let of no more than 31 days

Tax advantages of furnished holiday lets

The tax advantages if your property qualifies as a furnished holiday letting are:

  • you can claim capital allowances
  • you get the benefit of some favourable Capital Gains Tax rules when you sell or ‘otherwise dispose’ of the property

Another significant change is that losses arising from FHL’s can only be set against losses from the same business, not other sources of income.

Other holiday lettings tax guides:

John Endacott of Francis Clark clarifies the main points to the current furnished holiday lettings tax rules in part 1 and part 2 of this audio interview.

Inheritance tax blow for holiday home owners

Thousands of holiday home owners, who rent out their properties, face paying inheritance tax after a test case ruling.

HM Revenue and Customs persuaded High Court judges that a “large bungalow”, called Fairhaven, overlooking the sea on the Suffolk coast near Aldeburgh was an “investment” rather than a “business” and therefore subject to inheritance tax. Inheritance tax of 40 per cent is due on assets exceeding £325,000.

Francis Clark intends to continue the fight against the decision by launching a challenge in the Court of Appeal.

Partner John Endacott said that there needs to be clear guidelines on which holiday lets will or will not qualify for the relief.

We will update this post with any further developments on the appeal.

Can you avoid paying capital gains tax on a second home?

If you own two homes, but sell the main one, how long do you have to wait before selling the second one without having to pay capital gains tax on it?

The Independent property expert explains that the sale of a property that, throughout your ownership, has been your only or main residence should not give rise to any liability for capital gains tax.

If you own another property that you have not used as your only or main residence, any gain you make on a sale will be liable for capital gains tax. If you use the other property for a while as your only or main residence, then a proportion of the gain will be exempt from capital gains tax, but not the whole gain.

For any property you own, in order to qualify for any degree of exemption as your only or main residence you must have actually lived in it. Further to this, only one property can qualify at any one time.

10 ways to beat the taxman honestly

This isn’t specific to holiday lets, however there is some good advice on ways to reduce a tax bill, especially in relation to property.

It is possible to reduce the total amount of tax you pay as a couple if you arrange your finances correctly. For example, allocating holiday letting income to the partner who pays the lower tax rate.

For assets likely to trigger a capital gain (such as a property) it may be worth owning them jointly so you can use both spouses’ CGT allowance.

Borrow tax-efficiently – those with a buy-to-let properties can claim tax relief on the mortgage interest. It could make sense to increase borrowing on a buy-to-let and use this money to reduce the main mortgage paid on your residential home, where no tax relief is granted.

Council tax discounts for holiday homes scrapped

Holiday home owners currently receiving a 10% reduction on their council tax bill will potentially be paying hundreds of pounds extra a year following the decision to scrap council tax discounts for second homes.

At the moment, holiday home owners receive a 10% discount for their second home, but that will come to an end in the new 2013 tax year when they will be required to pay the full 100% council tax.

Although it is up to the local authorities to decide, many in holiday home hotspots have confirmed they will charge 100% council tax on second homes From April.

For those who let their holiday homes, council tax is an allowable expense and can be deducted from your gross rental income.

For further clarification talk to your accountant.

Whilst tax planning can seem overwhelming, there is a wealth of information available. You have responsibilities to pay tax on holiday rental income, so it’s sensible to keep up to date with the current tax rules and any benefits.

Disclaimer: Schofields does not offer formal tax advice. You should seek advice from either a professional tax adviser or from HM Revenue and Customs before acting on any of the information above.

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