Taxes, land transaction tax, change of use...

If you are planning to buy a rental home, or you're thinking about what to do with one you have just acquired, this is the place for any questions about starting out in the rentals business.
Tommytink
Posts: 11
Joined: Wed Feb 15, 2017 3:41 pm

Taxes, land transaction tax, change of use...

Post by Tommytink »

Hi,

I am currently looking to relocate to Wales and have a holiday let. This could be separate from my residential property, or something nearby (that's been converted, or I convert).

Anyway! I am hoping to view a property that has a house, and an already-converted barn. The barn has full residential permission and is lived in year round by a family member. The agent advises there are two separate council tax bands.

So, my questions are:

* The two properties are being sold together as the cottage was originally the barn and they've never been separate. The house will be my main residence, replacing the property I sold (I'm now in rented). Because the two are being sold together, despite having separate council taxes, does this mean I don't have to pay the additional tax for second homes? Because it's not separate, and it was all part of the same thing originally??

* Would I have to register a change of use for the cottage from residential to holiday let if that's what I wanted to use it for? Would there be any issues with this?

And general queries over council tax/business rates:

* Currently the converted barn has a separate council tax band from the house. The info I can see from the VOA states that a self-catering accomodation will be assessed for business rates if:
- It will be available for short term holiday letting for 140
days in the following 12 months; and
- in the 12 months prior to assessment it has been available
as short term holiday letting for at least 140 days and has
actually been let for at least 70 days of that period.

In addition HMRC say that I have to let the property for at least 105 days and it be available for at least 210 to qualify as a FHL.

So does this mean from when I start letting the property as a FHL I would have to continue to pay the council tax before being able to be assessed for business rates instead? Would this be a whole year or at the point I surpassed the 140 days with 70 days letting?

* Is the "rateable value" the income you receive over a 12 month period?

* Is it correct that if the rateable value is under 12k you will get 100% small business rate relief?

Many thanks in advance for any advice.
ianh100
Posts: 598
Joined: Thu Jan 10, 2013 4:37 pm
Location: Sherborne Dorset

Post by ianh100 »

Hi Tommytink and welcome

You have a number of questions here, some are clear others more complicated.

First, just because the vendor is selling the properties as one does not mean they are seen that way. If they each have separate council tax bands I would assume that they are viewed legally as separate properties (I am no expert). I would assume there is a risk that you would have to pay the additional stamp duty on the barn as a second home. You really need to take legal advice on that one.

You don't necessarily need to register a change of use, most local planning offices will advise you over the phone if they see an issue so just give them a call and ask. This can vary across the country.

If you can meet the HMRC FHL dates then the barn should qualify for business rates and with a single property of low enough value you would most likely qualify for a 100% rebate, this will be back dated the the time that the property started as a FHL with the assumption it would meet the HMRC requirements. The rateable value is generally based on the number of bed spaces you offer. rather than potential income. You can get a good idea of what that is by searching for the rateable value of similar properties locally, you will quickly see a pattern of rateable value per bed space. But keep in mind that government policy can change at any time and you may find you do have to pay the rates later even if you qualify under the current guidance.

You must also consider that your refuse will now include commercial waste which the council will either not collect or may offer a chargeable service to collect. This is a little more complex in your situation as the refuse may go into your existing bins. No matter what you do you need to ensure that you are able to show a waste transfer certificate that covers the commercial waste generated by your guests.
Tommytink
Posts: 11
Joined: Wed Feb 15, 2017 3:41 pm

Post by Tommytink »

Thanks Ian.

I've asked the council about whether I'd need to register a change of use.

I think I'll check with HMRC re: the extra stamp duty. On their website it says: "You’ll also need to pay the higher rates if you don’t own a residential property and buy at least 2 residential properties at the same time." although this reads to me as two completely separate properties.
It then continues to say:
"Two or more properties bought together may be treated as one if:
* they’re in the same building or grounds
* the main property accounts for two-thirds of the total consideration"

I think a 4-bed house with land would definitely count for two-thirds total consideration over a 1-bed cottage.

I've had a look at rateable values in the area. It seems to be a calculation of total area in m2 x price per m2. For the SC cottages this is a straight multiplication although noticed other businesses aren't done this way. Anyway, is the total area the bedroom area? Some are as small as 2 m2 so it's obviously not the whole building! Just theoretically if I had two holiday cottages, this measurement would be taken from both and treated as one (as in one business I'm guessing) to get the rateable value? Looking through the list locally I've only seen a couple that exceed £12,000 and only because they had multiple properties. So the conclusion I have come to is that I don't need to worry about the business rates and just be aware that policies can change in the future.

The waste issue - something I'd not considered. I know when I've stayed in cottages in Wales before I've put my rubbish in an allocated bin. What happens after that I don't know! What is the general set up for waste disposal? Do you normally pay extra for pick-ups? I imagine you would as you'd be producing a lot extra and it wouldn't even fit in the bin! In our area if your waste doesn't fit in your bin they won't take it, so imagine you'd need an extra allocation...?

Sorry for all the questions...
ianh100
Posts: 598
Joined: Thu Jan 10, 2013 4:37 pm
Location: Sherborne Dorset

Post by ianh100 »

Hi,

It sounds like you may be ok on the stamp duty, good news.

As for the ratable value you will almost certainly be OK. For my properties it is listed as square meters but what they actually mean is the number of permanent bed spaces. So my properties show as 4m and 5m. I can sleep more than that but trundle or fold our beds don't count as a bed space.

Refuse varies a lot around the country. some councils will take refuse others say you must use a contract company. I would check you local council recycling web site under trade waste. It may not be an issue but I know in some parts of the country they are chasing B&B and holiday lets for their trade waste. We pay around £250 a year per property for refuse collection, some places it is a lot more.
Tommytink
Posts: 11
Joined: Wed Feb 15, 2017 3:41 pm

Post by Tommytink »

I thought I'd look at a holiday cottage I'd stayed at as an example. They had 1 2-bed and 1 4-bed and their rateable value was £3,200 so that gives me something to compare to.

I also thought I'd look up a property that I'd considered purchasing previously, which is still on the market. They had a 3-bed residential house plus two holiday lets. These were converted from old buildings and are now semi-detached, both with two bedrooms. Interestingly these don't show on the rateable value checker. Why would this be? I have a basic sheet they sent me showing occupancy and income and they would be meeting the criteria for business rates. Can you average across properties for occupation as you would the FHL requirements from HMRC?

I am a little foggy on what you would do if you didn't meet business rate criteria, or if you met that criteria but didn't meet the FHL requirement set by HMRC...

I am only looking for enough to support myself living in the house, not to make a fortune. Still good to figure that I'm probably not going to get hit with a massive bill!
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