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  • Holiday Lets & Equivalent

    Tax and land-based businesses have been something of a battleground between taxpayers and HMRC, particularly in relation to furnished holiday lettings (“FHLs”), which can represent favourable long-term investments. However, there are a number of conditions to meet in order for a property to meet the FHL definition and therefore reap the favourable tax rewards. As such, reviewing the position is essential to ensure that tax reliefs are not missed.

    Tax relief

    Where qualifying conditions are met, FHLs are afforded a number of reliefs from tax over ‘standard’ lettings properties. Review your position now to ensure that such reliefs are available to assist you in your investment objectives

    Structure your affairs

    Is your holiday lettings business set up in such a way to ensure that you pay the right amount of tax?

    Enhance your investment

    If you are considering investing in property, are you fully aware of the benefits of FHLs? Would being aware influence your decision?

    How can we help?

    Furnished holiday lets have long benefited from favourable tax treatment giving them advantages over other property lettings.

    Those advantages mean that they are treated more like trading businesses than property investments meaning that:

    • Capital allowances can be claimed on expenditure that is not claimable by other residential property businesses. Such capital expenditure might include integral features such as air conditioning, lighting and other fixtures and fittings.
    • Capital gains tax reliefs such as entrepreneurs’ relief, holdover relief and rollover relief are potentially available since furnished holiday lets are treated as business assets rather than investments. For example, gains arising on the disposal of a furnished holiday let could be taxed at the reduced 10% entrepreneurs’ relief tax rate rather than the 28% rate applying to gains on the disposal of residential properties. Furthermore, if the proceeds of disposal are ‘rolled over’ into the acquisition of another furnished holiday let or other business assets, then no tax liability would arise.
    • Profits from a furnished holiday let are treated as relevant earnings for pensions purposes whereas rental profits from other properties are not
    • The mortgage interest relief restriction applying to residential properties from 6 April 2017 onwards does not apply to furnished holiday lets and therefore full relief will be available for interest costs even for higher and additional rate taxpayers
    • Furnished holiday lets were long considered to potentially benefit from business property relief and would therefore be exempt for inheritance tax purposes. But, numerous court cases over the years have sought to restrict this relief in whole or in part. However, these cases have laid down guidance as to where this relief is available. 

    Expert advice must be sought to ensure that your FHL business is providing you with the maximum tax benefit

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