Some 'starting out' financial questions...

[johnandtahra]

Hi everyone,

Can I ask for a little advice on how best to approach the financials for our new holiday let?

The facts
We completed on the property and took possession on xmas eve last year, and are aiming to make it available as a holiday let by late April this year. Other than the purchase price, we are currently budgeting around £8k for renovation and £5k for fixtures & fittings, all (or most) of which will be spent by the end of the 2014/15 tax year. We therefore are going to start off with a 'hole' of around £13k of expenditure.

As this is our first holiday let and our first year, I doubt that we would meet the requirements of a FHL, i.e. 210 days availability & 105 days let. I would hope that we can meet the 105 days let, but I'm not sure about the feasibility of off-season letting (i.e. Nov->March).

The questions
Is there a large benefit to being officially classified as FHL versus treating the income as 'other rental income'?
What things can we offset against any tax? (I would hope we could run in Y1 without any tax at all, given our outlay)
Can (and should) we route rental proceeds through the lower earner's income (we're in different tax bands)?
Does the fact that the property is in joint names prevent this?
Can we recover any of the VAT on any improvements to the property?
Does rental income mean self-assessment for the person who receives the rental income? (I already am in SA but my wife isn't)

I am sure that there are many more, but some of the older answers to similar questions on this site appear to be slightly out-of-date, given changes in HMRC rules, etc.

Thanks,

john

[greenbarn]

Maybe not what you want to hear, but you need to find an accountant who knows the FHL business. It will cost you a few hundred pounds, will quite possibly save you more than that, will save an immeasurable amount of uncertainty and grief, and the fees are tax deductible.

[johnandtahra]

Can you recommend one? I have an accountant that I've used previously, but have no idea whether holiday lets are an area he has experience in. I have sent an email to him to ask (though he's probably helping the last-minute SA panic clients right now )

[Nemo]

No recommendations for an accountant but it's categorically the right answer for your first year. They will be able to maximise your outlay in ways you may not know about.

You can run as a FHL from the outset and you use the first 12 months to determine whether you qualify. Worth reading this helpsheet for the latest tax return for up to date advice.
https://www.gov.uk/government/uploads/s ... /hs253.pdf

Advantages to running as a FHL is in the summary here: http://www.hmrc.gov.uk/manuals/pimmanual/pim4105.htm

With the property in joint names, then read this referring to Exception D - income from a UK property. businesshttp://www.hmrc.gov.uk/manuals/rdrmmanual/rdrm33510.htm Definitely an area for an accountant with expertise in a holiday letting business.

Rental income is declared as income from property via self assessment.

I wouldn't have thought there's a panic in January to get an accountant on board; just document everything and keep every possible receipt.

Hope that helps for starters!

[newtimber]

Can we recover any of the VAT on any improvements to the property?

Only if you are VAT registered. You can of course choose to become VAT registered, but then you have to charge VAT on the rentals. Unless you are going to generate a huge amount of income and therefore have to become VAT registered, it's not worthwhile.

[johnandtahra]

OK, thanks. I asked as I recalled something from somewhere about being able to recover VAT if it was used on a listed building (which this is) though it was, I admit, a while back when I read whatever it was that I read...