Holiday Let Tax
Discussion
Looking hypothetically to run a holiday let as a way of giving myself some space once a month whilst covering some costs.
I am checking the guidance on taxation and finding it hard (or being stupid) to work out the implications.
Some costs seem to be offset against income, then there is some thresholds, like number of days let etc.
Does anything above that simply go into self assessment and get taxed at the top rate of your normal earnings?
I am checking the guidance on taxation and finding it hard (or being stupid) to work out the implications.
Some costs seem to be offset against income, then there is some thresholds, like number of days let etc.
Does anything above that simply go into self assessment and get taxed at the top rate of your normal earnings?
Do you need to make it a holiday let, or can you afford to keep it for yourself?
The reason I ask is that I have a holiday home on the coast which I used to let out when I first bought it. I used an agency owing to the distance/time/hassle involved. I stopped pretty quickly as there was always something getting damaged. I'd kitted it out with good quality stuff - much better quality than I'd have used had it been purely intended as a rental. Family/friends are often worse than total strangers in this respect. Now I just keep it for my own use.
Sorry I'm not in a position to advise you on the tax situation,
The reason I ask is that I have a holiday home on the coast which I used to let out when I first bought it. I used an agency owing to the distance/time/hassle involved. I stopped pretty quickly as there was always something getting damaged. I'd kitted it out with good quality stuff - much better quality than I'd have used had it been purely intended as a rental. Family/friends are often worse than total strangers in this respect. Now I just keep it for my own use.
Sorry I'm not in a position to advise you on the tax situation,
There are rules you need to satisfy to qualify the property as a holiday let for tax purposes. these as you note relate to number of days let/available to let/not exceeding a certain number of days for each guest/etc. If you can satisfy these then there are tax breaks which can be more generous than a normal BTL. As I recall you can offset mortgage interest more fully than on a BTL, you may be able to escape council tax. A clear downside is borrowing against a holiday let is more expensive than against a BTL
GT03ROB said:
There are rules you need to satisfy to qualify the property as a holiday let for tax purposes. these as you note relate to number of days let/available to let/not exceeding a certain number of days for each guest/etc. If you can satisfy these then there are tax breaks which can be more generous than a normal BTL. As I recall you can offset mortgage interest more fully than on a BTL, you may be able to escape council tax. A clear downside is borrowing against a holiday let is more expensive than against a BTL
Thanks - good info. There would be no mortgage interest to offset (Ctax I didnt know but will dig).Its kitted out as I was living there for a while but its pretty cheap stuff and small enough damage doesnt concern me (too much).
Holiday Lets are looked on as a proper trading activity i.e. akin to someone running a business. Therefore, the tax rules regarding allowable expenditure and allowance claims are more in line witt the rules that are used for calculating trading profits (there are some differences).
A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
Eric Mc said:
Holiday Lets are looked on as a proper trading activity i.e. akin to someone running a business. Therefore, the tax rules regarding allowable expenditure and allowance claims are more in line witt the rules that are used for calculating trading profits (there are some differences).
A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
Thanks Eric - from what I can see from the rules this would fall under trading activity. The plan would be to let it over the threshold over the available days in the definitions I can find. Its a little complicated in that its essentially sub-let to me but leaving that aside I can see there is a degree of allowable expenses I can offset.A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
The key question for me is then if the profits count towards income tax as this may affect whether I can sustain it or not.
halo34 said:
Eric Mc said:
Holiday Lets are looked on as a proper trading activity i.e. akin to someone running a business. Therefore, the tax rules regarding allowable expenditure and allowance claims are more in line witt the rules that are used for calculating trading profits (there are some differences).
A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
Thanks Eric - from what I can see from the rules this would fall under trading activity. The plan would be to let it over the threshold over the available days in the definitions I can find. Its a little complicated in that its essentially sub-let to me but leaving that aside I can see there is a degree of allowable expenses I can offset.A Buy to Let situation, for tax purposes, is NOT a business so there are different rules regarding allowability of expenses etc. Buy to Lets are taxed under the Rental Income rules which are treated as "Investment Income" rather than "Trading Income" so the rules are more restrictive.
In order for holiday let income to be treated as such, the way the property is used has to comply with certain criteria to ensure that the property is being let on a "trading" basis (as a business) rather than as an "investment" ( rental income).
The key question for me is then if the profits count towards income tax as this may affect whether I can sustain it or not.
Correct. If you also rent it and use it as holiday accommodation for yourself, then the costs you incur in running the property are not entirely related to the income you receive by subletting it. The costs have to be apportioned in a "reasonable manner" in such a way that you only claim back those costs that are directly linked to your letting income.
The most common way to do this is on a time apportioned basis.
An example - if you sub let the property to visitors for 190 days a year, then you can only claim 190/365 of the allowable costs.
The most common way to do this is on a time apportioned basis.
An example - if you sub let the property to visitors for 190 days a year, then you can only claim 190/365 of the allowable costs.
Taita said:
I think blueg99 has just bought a holiday let that benefits from tax relief due to how he is using it.
The figures escape me but I think it has to be available for rent more than 250 (or similar) days etc. I can't remember the name of the scheme though.
I would be interested to hear how this works, but every time I've looked at it the model where you have a holiday home for your own use but can offset lots of costs and generate a bit of income by renting it out seems to be challenging unless you only want to use it for a week or two pa.The figures escape me but I think it has to be available for rent more than 250 (or similar) days etc. I can't remember the name of the scheme though.
Yep - the taxable profit is just added to your total income and you will pay tax on that income at your top rate of Income Tax.
One minor point is that, even though Holiday Lets are LARGELY taxed in the same way as sole trader profits, they are NOT subject to Class 2 ore Class 4 NI contributions.
Holiday Let income straddles two worlds in a rather messy fashion - the world of the sole trader (self employed) and the world of rental income. It is a kind of hybrid system.
One minor point is that, even though Holiday Lets are LARGELY taxed in the same way as sole trader profits, they are NOT subject to Class 2 ore Class 4 NI contributions.
Holiday Let income straddles two worlds in a rather messy fashion - the world of the sole trader (self employed) and the world of rental income. It is a kind of hybrid system.
Aside from income tax remember to look at council tax / business rates also. I have a furnished holiday let and it qualifies for small business rate exemption which essentially means there’s no council tax or business rates to pay (you do have to pay for bin collection etc). I forget the exact numbers but it has the be available to let for so many days per year (140 I think) and the criteria are currently less onerous that those to qualify as a furnished holiday let for income tax. I have a friend with a FHL who missed this point and paid thousands in council tax over a few years which he didn’t need to (and also missed out on the government support grants through covid which were big £).
As an aside mine provides an ok return (I’m considering adding another one to the portfolio), that said it’s in Northumberland where purchase prices are cheap relative to much of the UK. I quite enjoy running mine, it’s a distraction from my main business and something a bit different to think about.
Return is also driven by how you run / manage the property, I’m 150 miles from mine and hence I have to pay an agent about 20% of the rental to run it since if there’s a problem I can’t practically get there in any sensible timescale. My neighbour rents an identical property but living only 50 miles away he simply employs a cleaner to do change overs but does other problem solving / maintenance tasks himself, he makes a far better return than me, albeit with much more of his own time invested.
There does seem to be a growing tension in some holiday communities between locals who can’t afford the housing and holiday let investors / second homeowners. There’s talk of requiring planning permission for change of use going forward for holiday lets. I understand that there would likely be ‘grandfathering’ for existing holiday lets and hence planning wouldn’t be needed. Ultimately I can see this adding value to properties which have such grandfathered rights.
Just my random thoughts. Good luck.
As an aside mine provides an ok return (I’m considering adding another one to the portfolio), that said it’s in Northumberland where purchase prices are cheap relative to much of the UK. I quite enjoy running mine, it’s a distraction from my main business and something a bit different to think about.
Return is also driven by how you run / manage the property, I’m 150 miles from mine and hence I have to pay an agent about 20% of the rental to run it since if there’s a problem I can’t practically get there in any sensible timescale. My neighbour rents an identical property but living only 50 miles away he simply employs a cleaner to do change overs but does other problem solving / maintenance tasks himself, he makes a far better return than me, albeit with much more of his own time invested.
There does seem to be a growing tension in some holiday communities between locals who can’t afford the housing and holiday let investors / second homeowners. There’s talk of requiring planning permission for change of use going forward for holiday lets. I understand that there would likely be ‘grandfathering’ for existing holiday lets and hence planning wouldn’t be needed. Ultimately I can see this adding value to properties which have such grandfathered rights.
Just my random thoughts. Good luck.
I had a 1/3rd share in an FHL for 9 years - it was a lot of stress and never wiped its face. The final insult was when we had the business rates relief removed as one of my co-owners (Potty Patty or Gormless Graham) held another FHL in the same district. I forget the exact details behind this and it may depend on the specific policy of your county/district but maybe worth confirming before taking the plunge on a second FHL.
As others have said, it's easier to make it work if you live nearby and can help with maintenance and changeovers, and manage bookings and marketing yourself. Finding a reliable cleaner/handyperson in summer was difficult - some would say they needed at least 3 hours to do a proper clean/changeover on a 3 bed place and that's before adding in the long travel times on near-gridlocked Cornish lanes.
Also, for a new-build, it took us 2-3 years to generate a useful level of bookings. I recall the tax rules gave us some leeway at first. Repeat bookings, especially if 2-weeks, were ideal.
I expect the market is much more lucrative nowadays given the staycation boom, but do go in with your eyes open (it actually took us 4 years to sell the place!).
As others have said, it's easier to make it work if you live nearby and can help with maintenance and changeovers, and manage bookings and marketing yourself. Finding a reliable cleaner/handyperson in summer was difficult - some would say they needed at least 3 hours to do a proper clean/changeover on a 3 bed place and that's before adding in the long travel times on near-gridlocked Cornish lanes.
Also, for a new-build, it took us 2-3 years to generate a useful level of bookings. I recall the tax rules gave us some leeway at first. Repeat bookings, especially if 2-weeks, were ideal.
I expect the market is much more lucrative nowadays given the staycation boom, but do go in with your eyes open (it actually took us 4 years to sell the place!).
millen said:
I had a 1/3rd share in an FHL for 9 years - it was a lot of stress and never wiped its face. The final insult was when we had the business rates relief removed as one of my co-owners (Potty Patty or Gormless Graham) held another FHL in the same district. I forget the exact details behind this and it may depend on the specific policy of your county/district but maybe worth confirming before taking the plunge on a second FHL.
Thanks, yep I’m aware that you tend to lose the small business rates relief when you add a second property (I think there are some exceptions but needs to have a really low rateable value for these to apply). It is a chunk of the profit but the margin on mine is big enough to deal with this. Gassing Station | Finance | Top of Page | What's New | My Stuff