Tax on Furnished Holiday Homes

HomeProtect-12 June 2014

Renting out your furnished holiday home already requires a large amount of organisation. One thing to ensure you stay on top of is the tax on your furnished holiday home.

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Tax and your furnished holiday home

When you rent out a property as a furnished holiday letting in the UK, your rental income is treated differently to other rental incomes in terms of tax. For this to be the case, your property must conform to a certain number of rules or "qualifying tests". Firstly, it must be located within the UK or European Economic Area (EEA). Secondly, it must be furnished. Thirdly, it must be available as a commercial letting to the public as holiday accommodation for a minimum of 140 days per year, and must be let for at least 70 days per year (with rent charged at the going market rate). Finally, letting periods must be on a short term basis not exceeding 31 days (though if they do exceed 31 days, then the period will not count towards qualification).

Long-term occupation

Periods of longer than 31 days count as "longer term occupation" and if they exceed 155 days per tax year then the property will not qualify as a furnished holiday letting. This does not mean that the same person cannot rent the property for a number of separate periods that would total up over 31 days, as long as they are in occupation with marked intervals of not being in occupation in between. If your property does not qualify as a furnished holiday letting, then you will be taxed under the residential property lettings rules. You work out your taxable profit on holiday lettings in the same way you would a normal rental income; only instead of "wear and tear" allowance, you claim "capital allowances".

Tax advantages

There may be a tax advantage if your property qualifies as a furnished holiday letting if you a) make a loss on your rental income, or b) you sell or otherwise dispose of the property. If you make a loss on your rental income and your business is run on a commercial basis, any loss can be offset against your other income and not just your property income to reduce your overall tax bill. Alternatively, you might be able to carry the loss forward to offset it against future letting profits. Selling or otherwise disposing of the property can allow you to take advantage of a capital gains tax relief, like a "Business Asset Roll-Over Relief". This means that by reinvesting sale proceeds within three years in specified new assets, you might be able to defer payment of Capital Gains Tax until the new assets are eventually disposed of. These are simplifications of the potential tax benefits, so further research may be required to fully understand the rules.

Self-assessment tax return

Furnished holiday lettings rental income needs to be declared as part of the land and property section of your Self-Assessment tax return. Some expenses relating to your property might also be taken into account to help you reduce your tax bill, so it is well worth looking into what you can and cannot deduct. You will need to keep a record of all the rent you receive and the dates your property is occupied for, as well as a record of all of your business expenditure. You will also need to have copies of all sales receipts, invoices and bank statements. All records and documents mentioned will need to be kept on file for six years. Though in 2009 the furnished holiday lettings rules with regards to Income Tax and Capital Gains Tax were due to be withdrawn, the June 2010 emergency budget announced that this was no longer scheduled to take place, so all rules continue to apply.

Insurance

Whether your second home is unoccupied for periods of more than 30 days at a time, or it is fully booked year round as a furnished holiday letting, you will need to make sure your holiday home insurance policy is suitable for your needs. Many standard home insurance policies will not cover a property that is left empty for long periods, or occupied by multiple guests without the owner being present. With HomeProtect, this is not the case. We can provide you with a competitive online quote for both unoccupied insurance and holiday home insurance, no matter what type of occupancy might be applicable.

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