A complicated case !

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.
Vik38
Posts: 3
Joined: Fri Jun 29, 2018 1:49 pm
Location: Gwynedd

A complicated case !

Post by Vik38 »

Here goes for my first posting !
I have spent days pouring over this gold-mine of a site. So much good advice and things I hadn't even thought of. Sometimes a bit daunting but heck ...
But as usual my case a little complicated. Despite all the posts I’ve still got some juicy questions for you ! So here goes …

I live in France where I work and pay my taxes.
I inherited my father’s house (main residence) 2 years ago. It’s in Wales, near the sea. We decided to keep it as a holiday home and so had some work done on it.
Our local council now adds an extra 50% onto council taxes for second homes. So the cost is quite substantial for a few weeks holiday a year (a spontaneous weekend away obviously been out of the question for us).
So we’re thinking about letting it, mainly to cover the council taxes (£2200/year) and not as a full-blown business. If I can rent for 8 weeks a year I'd be more than happy !

I’m not really sure if it’s worth going through all the rigmarole of setting up a FHL (I think 70 days letting is feasible so the conditions could be met) – although from reading many of your posts it’s not that complicated. If I have understood correctly, I’d need to :
- check with the council for change of use (from main residence to furnished holiday let).
- register as a small business (is this compulsory for a FHL? Who do you register with?)
- contact VOA for a business rate (to replace council tax +50%)
- keep track of all expenditure and income – an excel spreadsheet should suffice
- fill in a self-assessment for UK inland revenue (any ideas if I need to do something re France?) Is there anything special for non-residents?

There would be no need to be VAT registered as income would be too low. But no VAT means no invoicing, doesn’t it? Do you simply give a hand-written “receipt”, add the amount to your “income” on the spreadsheet and put the money in your pocket? Is this ample for proof ? (France is very awkward for proving and justifying things).

If we don’t opt for FHL, the other option is to continue paying council tax (+50%), letting it (still just a hand-written “receipt” for cash in hand), and declaring the total “rental income” as normal revenue. Not being a British tax payer, I suppose I would have to declare it on a special form to UK Inland Revenue. Are there any allowances for expenses or outgoings on this “non- FHL” form? And what expenses can be taken into consideration? (council tax, insurance, water, electricity, wear and tear, maintenance?)

In both cases the property must respect all regulations (fire, safety, electricity, insurance, contract, terms & conditions etc..), that goes without saying, even for us to stay there TBH.
In both cases the risks and the management involved are the same. Both can be self-managed with care.
Are the outgoing expenses deductible in the same way? (There is no mortgage, loan or whatever – it’s simply bills, taxes, replacements vs rent).

Would one option be easier than the other for a non-resident? What would you go for?


Thanks in advance for your help.
Up in the hills a long way from home.
akwe-xavante
Posts: 306
Joined: Wed Jul 01, 2015 3:19 pm
Location: East Yorkshire

Post by akwe-xavante »

Hello and Welcome,

Gobsmacked someone hasn't replied already. I'll be the one who sticks his head out from under the radar and gets it chopped off by the next poster! :)

Coucil tax to Business rates and vise versa.... Contact the local council and they will hold your hand through the process for you. They won't do it for you but they will tel you how to do it and who to contact to get it done. You'll probably be Zero rated and have no council tax or Business rates to pay BUT the council will stop collecting refuse, something you'll need to resolve that can be achieved in a variety of different ways.

The local council will put you intouch with those responsible for switching you from Council to Business rates and they will do the whole thing for you. They are not daft though they will check to make sure you are trying to operate a FHL business and that you do have a minimum number number of weeks booked each year, i forget what it is for now.

You'll need to decide whether your going to manage the whole thing yourself from a distance or get an agent to get bookings for you on your behalf and employ people to do changeovers etc or go fully managed by an agent.

All income in subject to taxes even if at the end of the year the income after expenses is below taxation thresholds. All expenses incurred (generally) whatever they are, are tax deductable if your running a FHL properly and you'll have to to switch to business rates.

IMO you either do it properly or you don't do it all theres no half way house. You'll still be able to have your own hollidays there but you'll probably spend your holiday sorting something out or doing maintenance and stuff rather than having a holiday as you've been accustomed too.

All income, be it "cash in Hand" or otherwise requires an invoice, a hand written reciept is just that.

HMRC have Ooooodles of data collected over many years about all businesses inc FHL's and if there is an disproportionate level of expenses to income you'll get a knock at the door asking why! Putting cash in back pocket too often whilst offsetting all expenses against low income will raise alarm bells.

HMRC are not your memesis, there not your enemy infact they can be very informative and friendly with oooodles of help and support. Support staff can and do offer guidance on how to reduce your tax liability, you just have to know the right questions to ask. But don't upset them or you'll regret it.
newtimber
Posts: 1945
Joined: Sat Nov 24, 2012 5:57 pm
Location: Brighton
Contact:

Post by newtimber »

I wonder if you are keeping the property for sentimental reasons, because it's a lot of additional work and together with the complications of living in a different country, I don't think it'll be worthwhile financially. You could sell it, invest the money and use the income to have a holiday wherever you want without any hassle or worry.

If it's for sentimental reasons, then if you are letting others use it, it'll feel and smell different.Things will get damaged. Personal items have to be put away in storage.

You could opt for a long term rental if you didn't want to sell and if you thought you might want to live in it later on. It would be a lot less hassle than a holiday let.
Drax
Posts: 185
Joined: Thu Jul 21, 2016 4:36 pm
Location: Yorkshire Dales

Post by Drax »

HMRC rules require you to let your FHL for a minimum of 105 days per financial year.
As for renting out your house on a long term let, I would not do it. Tenants can be a nightmare, even if they are vetted they may still cause you problems with many abusing and damaging your house.
It will be somewhat difficult for you because you live in a different country but there has been some good advice given to you on here.
If do go ahead with a FHL good luck with your venture.
Keep your powder dry.
akwe-xavante
Posts: 306
Joined: Wed Jul 01, 2015 3:19 pm
Location: East Yorkshire

Post by akwe-xavante »

Drax wrote: As for renting out your house on a long term let, I would not do it. Tenants can be a nightmare, even if they are vetted they may still cause you problems with many abusing and damaging your house.
It will be somewhat difficult for you because you live in a different country but there has been some good advice given to you on here.
If do go ahead with a FHL good luck with your venture.
I agree it's possible to get a bad or even a series of bad tennants in a property but it's also just as possible to get equally bad guests too but only for a much shorter period though i admit.

I would be more likey to permanently rent a house that i had no emmotional ties too from a distance than run a FHL from a distance, get an estate agent to take it on on your behalf fully managed or just get them to do a tennant search for you and then do the rest yourself. With access to the net nowadays you can get a gas man to do the gas certificate whilst on Holiday on Mars. You can find a joiner, an electrician and a roofer quickly too if required. Pay an extra insurance premium that will cover loss of earnings and costs associated with kicking them out and repairing the place.

As NewTimber says, it's also my gut feeling that there are emmotional ties pulling at the heart with this one.

Is it further complicated by the fact that there is more than one family with interests in the property too?

Vik38 does say "I inherited my fathers house" apposed "we" and "Our"

Sell and buy something closer to home and start a FHL there instead and use it for family holidays.
Giraffe
Posts: 410
Joined: Sun Jun 26, 2016 10:10 am
Location: Cornwall, England

Post by Giraffe »

Hi Vic38. In order to qualify your FHL as a business the HMRC rules state (amongst many others) that you have to
. make your property available to let for 140 days per year.
And
. Let it for 105 days per year

You will only qualify for business rates if you can prove that you ARE achieving, or have a verifiable business plan that you WILL achieve, these targets. If not, you will have to pay council tax.

In some ways my position was similar to yours. We had our own family holiday home in Cornwall but for financial reasons I went down the FHL route. I am remote owner, but still in England. Believe me, it's hard work not only to achieve the 15 weeks of lettings, but also to run and maintain the property from 230 miles away. You have to have a number of local people available to assist both on a regular basis and when emergencies occurr. Not inexpensive!! And you have to be available at a moment's notice to sort out problems when visitors are in situ.

May I suggest you think carefully before you go down this route. Would it be worth it just to save the additional £733 of council tax? If you cost in your time then it's highly unlikely to be cost effective. If you decide to go ahead I would suggest you:

. Do a thorough business and financial plan

. Start with an agent who will obtain you sufficient economic bookings

. Find an agent who will manage the property for you (could be the same as the letting agent. I did this to start with)

Good luck if you go ahead. Giraffe
The best things in life are free
Giraffe
Posts: 410
Joined: Sun Jun 26, 2016 10:10 am
Location: Cornwall, England

Post by Giraffe »

PS. By the way, business tax relief for FHLs is not guaranteed. It was brought in by George Osbourne and, like any UK tax, is subject to political decisions in the future.
The best things in life are free
rammy100
Posts: 553
Joined: Thu Apr 25, 2013 8:20 am
Location: Berlin

Post by rammy100 »

I have been in a similar situation to you in that I rented out my UK house whilst I lived in Germany for 6 years.

In that time I had two sets of tenants.....one awful and the second better although they left me a mess to clear up but nothing that a portion of their security deposit couldn't take care of.

The first bunch were a real nightmare - late rent, caused problems with the neighbours, left the house really filthy and gave me a load of abuse when I challenged it.

I have been back about a month now and don't really agree with what others have said about it feeling tainted. It felt fine as soon as I had cleaned up.

Taxes - for UK tax you just need to complete a UK Tax Return and yes, you can claim about the things you talk about although won't your tenants pay for utilities?

Provided you are entitled to a UK personal allowance and your net income is below that then you won't pay any UK tax.

One point I would make is that you absolutely need someone close by to take care of any emergency issues and I would try to find a reliable local person/friend rather than an agent - but that's a personal choice as I know others who were badly ripped off by agents.

We did it as we were moving overseas for a year and wanted to keep a foot in the UK.

Would I do it again? Yes, if it was a means to an end.
Here we go again........
Vik38
Posts: 3
Joined: Fri Jun 29, 2018 1:49 pm
Location: Gwynedd

Post by Vik38 »

Thanks to all for your valuable answers!

newtimber & akwe-xavante – you’ve hit the nail on the head. There are many happy memories in the place. I don’t particularly want to sell. It’s a lovely peaceful place and ideal to recharge your batteries. And in fact selling the place isn’t really an option either as the sea defence management along the coast is unfortunately to be abandoned over the next couple of decades. Nothing is selling there – whatever the price!

I realise how complicated it is at a distance – which is why I don’t want to go into large scale lettings. Ideally I’d like the occasional letting which would help to cover the crippling council tax.

Giraffe – if I don’t go down the “FHL route” can I just legally do occasional lettings? Do I just have to do a Self Assessment tax.

I really want to be above board with everything. There’s no way I want to try to fiddle the HMRC people. I just want to cover the council tax and am not particularly interested in making a profit.

I think I’ll give the HMRC a call to clear up some of my questions as a non-resident. I’ll need to prepare all my questions as clearly as possible.

Thanks again for your time and energy in answering me.
I’ll keep you posted !
Up in the hills a long way from home.
Giraffe
Posts: 410
Joined: Sun Jun 26, 2016 10:10 am
Location: Cornwall, England

Post by Giraffe »

As far as I am aware you can holiday let your property on an occasional basis as long as you declare the income on your tax return. It's only once you hit the 15 weeks that HMRC may class you as a business. Up to that point you may not be able to claim expenses etc. Good idea that you are phoning HMRC to check out your queries.

I started out that way, just letting to colleagues and friends. When I retired I went down the business route in order to make an annual profit. I have 2 local friends who run a housekeeping/maintenance business, so I have reliable cover. As rammy 100 says, this is important for dealing with emergencies when you are an offsite owner.

Good luck. Giraffe x
The best things in life are free
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