Following the impact of new taxes since April 2017 on buy-to-let properties (see our article Buy-to-Let – Time to Sell Up?) investors have turned their attention to furnished holiday lets as an alternative.
Provided a fully furnished property is let for holiday purposes for the relevant qualifying period of each accounting year it is regarded as a business with the consequence that it attracts very generous benefits which are no longer available to buy-to-let investors.
More particularly:-
For Rates
If the property is let for at least 140 days a year:-
- It is regarded as a business so no council tax is payable
- Further, if the rateable value is less than £12,000.00 it will attract small business rates relief at 100%
For Tax
If the property is available for letting for at least 210 days of the accounting year and is let for at least 105 days of that period:-
- You can fully furnish the property and set off the expenditure against pre-tax profits
- Mortgage interest payments can be set off in full against tax
You will have to pay Stamp Duty Land Tax on purchase at the higher rate (3% above standard rates) but that applies to any second home.
When you come to sell providing you meet the qualifying conditions then because the asset forms part of a business you should be able to claim Entrepreneur’s Relief reducing the charge to Capital Gains Tax to 10% of any gain.
It is unclear how long the government will allow this disparity in tax and rates treatment between buy-to-let and furnished holiday homes to continue but as long as it does, and with Brexit to deal with it is unlikely to be top of the legislative agenda, the advantages for investors are considerable.
If you would like any advice in relation to furnished holiday properties contact Glyn Evans on 01934 637911 or email evans@powellslaw.com
