Lay My Hat

Am I reading it right that if you only let out your holiday let for 105 days or less a year it not class a commercial let and there fore there no tax to pay, I not yet started to let as yet am just reading through the hmrc side of things, does anyone know how this works.
Rotaman

No, you still pay tax on it, and it doesn't have the tax advantages that a furnished holiday let will have.

There are very few advantages to FHL these days. In the past you could carry losses over to income earned elsewhere but clearly that was being abused.

I think the only benefits now are a lower capital gains percentage (subject to change) and an ability to roll over the capital gains into another purchase if you invest in a new property.

They key benefit that we use is the ability to declare the income in a ratio that we decide. As my wife has no other income we declare all property income in her name making best use of her tax allowances. You can't do that if you don't break the 105 night barrier

ianh100 wrote: They key benefit that we use is the ability to declare the income in a ratio that we decide. As my wife has no other income we declare all property income in her name making best use of her tax allowances. You can't do that if you don't break the 105 night barrier

Is the property owned jointly, or just by your other half? I asked this question of our accountant and he said we would be on a sticky wicket doing anything other than a 50 50 income split as the property is owned 50 50.

Hi, I find a lot of accountants and financial services people don't fully understand the subtle differences between FHL and buy to let.

I have queried my accountant on this several times and they have confirmed that with FHL (Not buy to let) you can currently declare the income as you wish. We own the properties 50:50. I reference the interest in the property in my own tax return but not the value. All of the income is in my wifes name.

FHL income also qualifies for pension investments. There is also an option to claim capital allowances but this seems very complicated and not justified with the value of our properties.
These advantages seem to be making more people look at FHL rather than buy to let, while the returns can be good it takes a great deal more effort to run a quality FHL than buy to let.

Our accountant originally said split it 50-50. However, I do all the marketing & manage the houses so he decided recently that we could justify splitting it 80-20.

As I mentioned I have asked my accountant about this on several occasions. Just doing a bit of googling and it still seems to be the case:

From the Gov.Uk site

Property held jointly by married couples or civil partners: The 50/50 rule: Income from furnished holiday lettings

The 50/50 rule does not apply to income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation.

If a spouse or civil partner carries on the activity alone: that spouse or civil partner is taxable on the income.
If a spouse or civil partner carries on the activity with others: the income is split for tax purposes in the way the parties have agreed to split the profits amongst themselves.

Another issue to consider is that if it doesn't qualify as a commercial enterprise you may be liable for council tax (and any uplift that applies to 'substatially unoccupied' properties), instead of business rates with a small business exemption.

I just want to respond to there being very few tax advantages...

A FHL will be classed as a non-residential property and get business rates relief (in my case no business rates due)
..also no 3% stamp duty on purchase
...and also I can offset the mortgage interest which I will not be able to do on my residential lets.
...and also can claim capital allowances on furniture
...and finally on sale I will pay less capital gains tax due to entrepreneurs relief and/or holdover relief

sparkJS wrote:I just want to respond to there being very few tax advantages...

A FHL will be classed as a non-residential property

..also no 3% stamp duty on purchase

I'm not clear on why you think this? Unless it's a shop/office or has a flat above and qualifies as mixed use, I understood a FHL purchase is still classified as a residence and you pay the increase in stamp duty. You have to buy six residences at once to not pay the increase. I just purchased last year and paid the increased stamp duty.

I can't place my hands on the detail but I don't believe you should pay if you are seeking to make a profit and (in my case) it is non residential. My house cannot be lived in as a primary residence.

I also read an article in the Times yesterday which said that there has been a couple of billion in stamp duty overpaid as solicitors do not understand the rules.

That makes sense if it's classified as holiday home usage only. I suspect most purchases are homes that could be used as residences where I think you'd struggle to claim it's commercial use.

I would be careful and check. Our property has a planning restriction but that doesn't mean it is a commercial property. It just says it can't be a primary residence. I would say that it almost makes it clearer that it is a second home so would attract the higher stamp duty.

What would happen if you managed to purchase and not pay the higher level but stopped commercial letting or failed to meet the criteria?

sparkJS wrote:I can't place my hands on the detail but I don't believe you should pay if you are seeking to make a profit and (in my case) it is non residential. My house cannot be lived in as a primary residence.

I also read an article in the Times yesterday which said that there has been a couple of billion in stamp duty overpaid as solicitors do not understand the rules.

I’m just wondering whether you have been able to track down the detail. My Solicitor has said that their interpretation is that BTL and FHL (when second properties) are eligible to pay the Welsh land tax. This is despite the planning restrictions limiting it to holiday use only.

I agree that a FHL is considered commercial in relation to HMRC and business rates but it seems that it’s only when you have more than six properties that it’s considered commercial.
If you have any evidence to the contrary, I’d be very grateful if you would share.

Well firstly the interpretation of the legislation is subjective so I think we need a tax case to refer to, to get to the bottom of it but...

We are relying on the property being non-residential i.e. not a residence. Forget the word commercial - its not relevant. A residence is by defined by the legislation as a building that is used as a dwelling. A dwelling is where people live (also the dictionary definition of a residence).

I asked my solicitor during the completion process whether they could arrange it so that I can 'live' there as my residence and the answer was no. It is not allowed and also not suitable to live there as a dwelling (due to design). It is only suitable for people to 'stay' there for a short stay i.e. holiday. Each property is unique but I'm sure a huge proportion of holiday homes are suitable to be lived in and will be classed as a dwelling. I have a dozen reasons why my property could not be lived in as a dwelling.

In the legislation, one of the exclusions as a residence is a hotel or similar establishment. There is mentioned somewhere in hmrc guidance that cases will be treated on their merits.

http://www.legislation.gov.uk/ukpga/2003/14/section/116


My solicitor went away to do some research and concluded that this was a trade (I bought through a Ltd Co - not sure if that makes any difference though!) and the purchase included Goodwill and other business intangible assets...

""it appears that the property may possibly be treated as a trade for all purposes if the following conditions are satisfied:-

1. The property is situated in the UK;
2. The business is carried on commercially and with a view to a profit;
3. The total periods of “longer term occupation” of the property do not exceed 155 days during the relevant accounting period. Please note that a period of “longer term occupation” is a letting to the same person for longer than 31 continuous days;
4. The property is available for commercial letting as holiday accommodation to the public for at least 210 days during the relevant accounting period;
5. The property is commercially let as holiday accommodation to members of the public for at least 105 days during the relevant accounting period.
""
I hope all this helps. The tax return is a self assessed tax so ultimately it is up to you to fill them in correctly. Get yourself some PFP insurance just in case!