Hi, I live in a 4 bed detached house in a Wiltshire village. I have applied for planning permission to convert my derelict outbuilding, which is quite close to the rear of my property. I would like to turn it into two self-contained units, ensuite, with small kitchenettes. Therw would be a soundproofed, adjoining door, should a family wish to rent both units together. We would rent the units on a daily basis, with no breakfast; instead providing amenities for guests to prepare their own food.
The planners are happy to support with some minimal amendments on the basis that we will not rent it out on a shorthold basis e.g. 6 month let and cannot sell it as a separate building. This is fine.
The initial planning request was for change of use for ancilliary usage (tieing it to the main house & making clear that we will also use it for family and friends) and to be let out all year 'round. However the planner has raised an amendment to say the use is for two holiday lets. She has readvertised the amendment for a period of two weeks.
The thing I don't understand is what the financial implications are to me of this amendment. I was hoping for the building to be treated as part of the house to avoid issues with council tax, business rates, commercial status, problems with the mortgage company, etc. It is very close to the house (2 metres at it's closest part, maybe 7 at it's furthest away). We would like to use the rooms for our own guests now and then and rent when we get customers.
Any advice regarding how this situation is likely to be treated and how we need to progress this would be appreciated. I could potentially challenge this amendment, although this will inevitably delay proceedings and cause negatively impact a planning decision which looks likely to be approved.
I realise that building regs are the next step, but it's the financial/tax angle that I can't get any definitve answer on.
Thanks a lot for reading
Planning permission - Advice requested please
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WiltshireJ
- Posts: 2
- Joined: Sun Jul 15, 2012 9:11 pm
- Location: Wiltshire
I have no personal experience so cannot help from that perspective. There are several members here that have accommodation that I think would be similar. The one that springs to mind immediately is the member Jenny C. You could send her a private message if she doesn't respond on this thread. She is an accountant as well and very helpful!
I suspect you will be going down the route of business rates - not sure that you could get round that with what you are planning, but I'm guessing!
I suspect you will be going down the route of business rates - not sure that you could get round that with what you are planning, but I'm guessing!
Sorry for my slow reply - life is rather hectic at the moment.
Your planned accommodation sounds very similar to ours, albeit you are planning two units and we have one. Our outbuilding was derelict, is just a few metres away from our house, and we obtained planning permission to convert it to a granny annexe / holiday let (to give us some scope for the future with elderly relatives!). We meet the conditions (which I describe below) to be treated as a Furnished Holiday Let. We operate the business with a view to making a profit, and aim for an occupancy rate as high as possible. Occasionally, we book friends and family in to the cottage as a treat (which they love!), but this is the exception rather than the norm.
We let our property on a weekly basis, but most common is short breaks of three nights (Friday to Monday) or four nights (Monday to Friday). Many of the other UK owners on this forum operate in a similar way. In our first year, we restricted summer lets to be minimum seven nights, but quickly realised that our main market is for short breaks, so now we offer these shorter stays year-round. They take a little more effort with two changeovers a week, but are far more lucrative. A short break sells for around 75% of the weekly rental price.
We keep short breaks to a minimum of three nights, because it is not worth our while fully cleaning the property for single night stays. Occasionally we'll offer two nights at the last minute but this is unusual. If you are at work during the day you will need to consider how you will manage the "meet and greet" (key safe perhaps?) and how the changeover will happen (employ a cleaner?).
I have to say, I do not know whether the units have to be attached to your main home to be classed as ancillary accommodation. This is a complex area and you would be best seeking specific legal advice on this point. Most of the tax rules regarding ancillary accommodation refer to "letting out rooms in your main home" and it is not clear whether a separate outbuilding, entirely self-contained with its own entrance, would qualify for the "rent a room" treatment described below.
I have set out below some thoughts on the various financial considerations that you would need to look at.
Furnished Holiday Let - Tax Treatment
The tax rules for furnished holiday lets are reasonably complex, and there have been some significant changes in the past few months. But the important thing to remember is that, for a property to be treated as a furnished holiday let, it must be available for at least 210 days and actually let for at least 105 days in the tax year. It must also not be let on a long-term basis for longer than 155 days in the tax year. It must also be let with a view to making a profit. Once you meet the conditions for a furnished holiday let, the rental income is treated as trading income, and there are some favourable tax treatments - in particular, "capital allowances" can be claimed on items such as furniture, white goods etc. Some of the items you will purchase during the renovation will also receive capital allowances such as central heating systems, fitted kitchen, sanitary ware. These capital allowances will reduce the eventual tax bill.
Ancillary Accommodation - Tax Treatment
If the rental is treated as ancillary accommodation rather than a furnished holiday let, the rent is likely to be chargeable to tax as trading income (due to the nature of the business, with services like cleaning being provided to tenants), but there is a tax free allowance of up to £4,250 known as the rent-a-room allowance (£2,125 each if you own the property jointly). If you earn over £4,250 in rent, you can choose to pay tax on the excess, or on the total rent less expenses (trading profit). Unless the rental meets the conditions for being a furnished holiday let, no capital allowances will generally be available, but a wear and tear allowance (10% of gross rents) is available.
Business Rates
Business rates will be payable if you are running a furnished holiday let business from your home. The valuation office will visit to determine your "rateable value" and you will receive a bill. Our rateable value was small, and in any case there is a 100% exemption from business rates for small businesses which runs until early next year - perhaps this may even be extended given the current problems in the economy - we'll have to wait and see! When we received our business rates assessment, I contacted the Council Tax office to see if we could apply for a reduction in our council tax given that part of our home was now a business. It depends where in the current band you fall and how big the business is as to whether your domestic usage will be reduced sufficiently to push you into a smaller Council Tax banding. Unfortunately we didn't get a reduction in Council Tax, but it is always worth asking.
If the rental is ancillary accommodation to the main home, it is likely to be exempt from business rates unless there are more than six guests. You should check this point with the business rates department of your local council.
Mortgage Provider
You will need to notify your mortgage provider regardless of which route you go down (furnished holiday let or ancillary accommodation). Any letting of rooms or units forming part of your own property will need to be agreed with the mortgage company. In our case, the mortgage company were happy to sign the agreement with the council (sounds very similar to the one you have governing not renting the property out long term etc). If you change your mortgage, you need to check that the new mortgage provider is happy with a small amount of business usage at the property. Some mortgage lenders will not be, and will insist on a commercial mortgage (at extortionate rates) so it is always best to check.
Commercial Status
You mention about commercial status in your post - this would, I imagine, have an impact when you come to sell the property. Capital Gains Tax implications can arise if there is a proportion of business use at the property. One advantage of the FHL route is that there are various reliefs available when coming to sell an FHL property which minimise the CGT payable. This is not the case if the letting does not meet the conditions for an FHL.
Anyway, lots to think about - let me know if you want any more information on anything, and you're welcome to come for a coffee sometime if you want to have a chat about the holiday let business and see what we do! Always nice to meet other local owners!
Jenny
Your planned accommodation sounds very similar to ours, albeit you are planning two units and we have one. Our outbuilding was derelict, is just a few metres away from our house, and we obtained planning permission to convert it to a granny annexe / holiday let (to give us some scope for the future with elderly relatives!). We meet the conditions (which I describe below) to be treated as a Furnished Holiday Let. We operate the business with a view to making a profit, and aim for an occupancy rate as high as possible. Occasionally, we book friends and family in to the cottage as a treat (which they love!), but this is the exception rather than the norm.
We let our property on a weekly basis, but most common is short breaks of three nights (Friday to Monday) or four nights (Monday to Friday). Many of the other UK owners on this forum operate in a similar way. In our first year, we restricted summer lets to be minimum seven nights, but quickly realised that our main market is for short breaks, so now we offer these shorter stays year-round. They take a little more effort with two changeovers a week, but are far more lucrative. A short break sells for around 75% of the weekly rental price.
We keep short breaks to a minimum of three nights, because it is not worth our while fully cleaning the property for single night stays. Occasionally we'll offer two nights at the last minute but this is unusual. If you are at work during the day you will need to consider how you will manage the "meet and greet" (key safe perhaps?) and how the changeover will happen (employ a cleaner?).
I have to say, I do not know whether the units have to be attached to your main home to be classed as ancillary accommodation. This is a complex area and you would be best seeking specific legal advice on this point. Most of the tax rules regarding ancillary accommodation refer to "letting out rooms in your main home" and it is not clear whether a separate outbuilding, entirely self-contained with its own entrance, would qualify for the "rent a room" treatment described below.
I have set out below some thoughts on the various financial considerations that you would need to look at.
Furnished Holiday Let - Tax Treatment
The tax rules for furnished holiday lets are reasonably complex, and there have been some significant changes in the past few months. But the important thing to remember is that, for a property to be treated as a furnished holiday let, it must be available for at least 210 days and actually let for at least 105 days in the tax year. It must also not be let on a long-term basis for longer than 155 days in the tax year. It must also be let with a view to making a profit. Once you meet the conditions for a furnished holiday let, the rental income is treated as trading income, and there are some favourable tax treatments - in particular, "capital allowances" can be claimed on items such as furniture, white goods etc. Some of the items you will purchase during the renovation will also receive capital allowances such as central heating systems, fitted kitchen, sanitary ware. These capital allowances will reduce the eventual tax bill.
Ancillary Accommodation - Tax Treatment
If the rental is treated as ancillary accommodation rather than a furnished holiday let, the rent is likely to be chargeable to tax as trading income (due to the nature of the business, with services like cleaning being provided to tenants), but there is a tax free allowance of up to £4,250 known as the rent-a-room allowance (£2,125 each if you own the property jointly). If you earn over £4,250 in rent, you can choose to pay tax on the excess, or on the total rent less expenses (trading profit). Unless the rental meets the conditions for being a furnished holiday let, no capital allowances will generally be available, but a wear and tear allowance (10% of gross rents) is available.
Business Rates
Business rates will be payable if you are running a furnished holiday let business from your home. The valuation office will visit to determine your "rateable value" and you will receive a bill. Our rateable value was small, and in any case there is a 100% exemption from business rates for small businesses which runs until early next year - perhaps this may even be extended given the current problems in the economy - we'll have to wait and see! When we received our business rates assessment, I contacted the Council Tax office to see if we could apply for a reduction in our council tax given that part of our home was now a business. It depends where in the current band you fall and how big the business is as to whether your domestic usage will be reduced sufficiently to push you into a smaller Council Tax banding. Unfortunately we didn't get a reduction in Council Tax, but it is always worth asking.
If the rental is ancillary accommodation to the main home, it is likely to be exempt from business rates unless there are more than six guests. You should check this point with the business rates department of your local council.
Mortgage Provider
You will need to notify your mortgage provider regardless of which route you go down (furnished holiday let or ancillary accommodation). Any letting of rooms or units forming part of your own property will need to be agreed with the mortgage company. In our case, the mortgage company were happy to sign the agreement with the council (sounds very similar to the one you have governing not renting the property out long term etc). If you change your mortgage, you need to check that the new mortgage provider is happy with a small amount of business usage at the property. Some mortgage lenders will not be, and will insist on a commercial mortgage (at extortionate rates) so it is always best to check.
Commercial Status
You mention about commercial status in your post - this would, I imagine, have an impact when you come to sell the property. Capital Gains Tax implications can arise if there is a proportion of business use at the property. One advantage of the FHL route is that there are various reliefs available when coming to sell an FHL property which minimise the CGT payable. This is not the case if the letting does not meet the conditions for an FHL.
Anyway, lots to think about - let me know if you want any more information on anything, and you're welcome to come for a coffee sometime if you want to have a chat about the holiday let business and see what we do! Always nice to meet other local owners!
Jenny
Last edited by Jenny C on Mon Aug 06, 2012 6:53 pm, edited 1 time in total.
Just what I was thinking!! thanks Jenny C for taking the time and trouble to give such a great reply,Greenbarn wrote:Wow - that is so much useful information, understandable, and all in one place!
It may not be obviously searchable under the Planning heading - could it be made a sticky in its own right?
thats whats so great about LMH!!
and thanks to Nemo for the heads up as well
thanks N xx-
WiltshireJ
- Posts: 2
- Joined: Sun Jul 15, 2012 9:11 pm
- Location: Wiltshire
Hi
Firstly Nemo, thanks for pointing me in the direction of the very helpful JennyC. Secondly Jenny,thanks so much for this excellent information.
I just returned from work to find this very useful reply, which confirms some things for me, clarifies others and fills in a large number of blanks.
I am rushing out again now, so apologies for the brief reply, but I am very grateful. We will also take you up on your offer to meet for a coffee. Although we are 25 minutes away we actually go to Malmesbury quite often to take our son swimming.
Thanks again.
Firstly Nemo, thanks for pointing me in the direction of the very helpful JennyC. Secondly Jenny,thanks so much for this excellent information.
I just returned from work to find this very useful reply, which confirms some things for me, clarifies others and fills in a large number of blanks.
I am rushing out again now, so apologies for the brief reply, but I am very grateful. We will also take you up on your offer to meet for a coffee. Although we are 25 minutes away we actually go to Malmesbury quite often to take our son swimming.
Thanks again.
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Sam V
- Posts: 1707
- Joined: Fri Nov 20, 2009 1:45 pm
- Location: Villa in Gale, Algarve, Portugal. At home in Fetcham, Surrey, UK
- Contact:
Finally! I just found this and it answers so much. We have a detached 1 bed annex we want to let for holidays & business lets with a view to granny annex at some point, but need to understand how to legitimately get started. I've been gong round in circles all over the net trying to find info like this to no avail! Thanks Jenny, so many questions answered! If you have a chance has anything changed in terms of tax, etc? Who best to approach at the council first?
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www.algarvevillatrinity.co.uk
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dont mess in the affairs of cats for they are subtle and will p on your computer.
www.algarvevillatrinity.co.uk
www.facebook.com/villatrinity
www.gardenerscottage.promotemyplace.com
Glad to be of help, Sam! Everything I said in my post is, as far as I am aware, still relevant and there are no major changes that I know of.
I have not heard anything about the business rates exemption being extended though, so I doubt this will happen unfortunately.
Whereabouts are you based, Sam? Your profile says the Algarve, but I know nothing about Portuguese tax or councils, so wouldn't be able to make any suggestions as far as foreign tax is concerned!
If you are UK-based, I would suggest speaking to the council's planning department first. Planning permission is simpler if you are not listed (we are grade 2 listed so it was a bit of a nightmare!) or in a conservation area. You may also wish to contact some architects to obtain quotes. Some architects will do all of the liaison with the planning department / planning permission (which they will charge a fee for!) and others will do the drawings but you would deal with the planners. It is up to you what arrangement you put in place, and may depend on your budget.
I have not heard anything about the business rates exemption being extended though, so I doubt this will happen unfortunately.
Whereabouts are you based, Sam? Your profile says the Algarve, but I know nothing about Portuguese tax or councils, so wouldn't be able to make any suggestions as far as foreign tax is concerned!
If you are UK-based, I would suggest speaking to the council's planning department first. Planning permission is simpler if you are not listed (we are grade 2 listed so it was a bit of a nightmare!) or in a conservation area. You may also wish to contact some architects to obtain quotes. Some architects will do all of the liaison with the planning department / planning permission (which they will charge a fee for!) and others will do the drawings but you would deal with the planners. It is up to you what arrangement you put in place, and may depend on your budget.
There's a very good planning consultant in Chippenham, WiltshireJ - if that's within your reach - so if the local planning officers are being a bit opaque, it might be worth you getting an hour of Marc Willis's time. We have used him over the years and he's very good.
http://www.iwiltshire.co.uk/profile/518 ... is-and-Co/
E2A: I just noticed that WiltshireJ's enquiry was last July so s/he's probably sorted and letting by now...
http://www.iwiltshire.co.uk/profile/518 ... is-and-Co/
E2A: I just noticed that WiltshireJ's enquiry was last July so s/he's probably sorted and letting by now...
Indeed it is. Fantastic news!DaveN wrote:Jenny C wrote:I believe that business rate relief for small businesses was extended until April 2014 in the Autumn Statement.I have not heard anything about the business rates exemption being extended though, so I doubt this will happen unfortunately.
http://economia.icaew.com/news/december ... -avoidance
Not sure how I missed this thread before as it is relevant to questions I raised on another thread.
we have a holiday let that is a bran conversion (not near out home). The planning permission states "holiday use only" or something along these lines. The previous owner rented it to a long term tenant, one of the local residents (sits on the parish council) raised this and got the tenant evicted.
We knew this when we bought the property and the price reflected it. Our frustration is that there is no solid definition of what this restriction means. Clearly I can't live there with it as my only residence but what can I do?
I have assumed I am safe to rent for 31 days but what about longer than this but less than 6 months?
I have turned down 2 rentals over the winter that wanted somewhere for 10-12 weeks. While the rate would be lower it would have been welcome income.
From what I can see there are contraditions in the descriptions for taxation for example. I am sure I read a 31 day maximum to be viewed as a FHL.
Anyone had similar experience?
we have a holiday let that is a bran conversion (not near out home). The planning permission states "holiday use only" or something along these lines. The previous owner rented it to a long term tenant, one of the local residents (sits on the parish council) raised this and got the tenant evicted.
We knew this when we bought the property and the price reflected it. Our frustration is that there is no solid definition of what this restriction means. Clearly I can't live there with it as my only residence but what can I do?
I have assumed I am safe to rent for 31 days but what about longer than this but less than 6 months?
I have turned down 2 rentals over the winter that wanted somewhere for 10-12 weeks. While the rate would be lower it would have been welcome income.
From what I can see there are contraditions in the descriptions for taxation for example. I am sure I read a 31 day maximum to be viewed as a FHL.
Anyone had similar experience?
I would have thought that the first, and most obvious, place to look would obviously be the planning permission documentation. I assume that if you do not have this to hand, it can be obtained from the local council's planning department, or even your solicitor as it would have been one of the legal documents to consider when purchasing the property. This should state exactly what is meant by "holiday use".
For example, our planning permission is for short holiday lets of less than 31 days.
For example, our planning permission is for short holiday lets of less than 31 days.
Hi Jenny
Thanks for the quick reply. I am out of the country with work so do not have the papers to hand. I do have copies of the planning permission but all they state is that the planning is permitted for the purposes of holiday use. There is no definition at all of what this means.
There are 3 barns and one other owner was also taken to court, he was able to win in his case as he has another home abroad. Even in his case the definition did not seem to be clarified.
Perhaps I should just contact the local planning office for clarification. I don't want to break the planning permission but it seems unfair not to define what it actually means.
Thanks for the quick reply. I am out of the country with work so do not have the papers to hand. I do have copies of the planning permission but all they state is that the planning is permitted for the purposes of holiday use. There is no definition at all of what this means.
There are 3 barns and one other owner was also taken to court, he was able to win in his case as he has another home abroad. Even in his case the definition did not seem to be clarified.
Perhaps I should just contact the local planning office for clarification. I don't want to break the planning permission but it seems unfair not to define what it actually means.