Holiday
Home Financial Management
Introduction
- Purchasing a property as a
Holiday Home for
personal usage or as a investment is becoming more popular. Many people are
waking up to the tax advantages of this type of property purchase and the fact
that you have the added bonus of being able to use your holiday home cottage for
your own or your families holidays. However pretty your dream holiday home, like any
financial decision, you should only enter in to it with your eyes wide open in
possession of all the facts. Generally speaking, this type of purchase should
only be considered as a long term arrangement, it is highly unlikely you will
make any money in the initial years. To assist you with the decision making process,
here are some pointers for you with regard to the financial aspects of holiday
home purchase.
The Council Tax -
as with your own home, the amount of council
tax that you will be required to pay will very much vary from area to area and is
also dependent on the value of your property. Homes are banded depending on
valuation and from this, the local authority will calculate your council tax
charge. Many areas have concessions for
second homeowners, a number allow a
discount of up to 50% of their standard rates but in the main you should expect
to pay up to 90% of the usual annual amount. Please remember that the local authority will want
you to pay council tax regardless if the property is occupied or not. For properties that are available to let for 19 weeks or last
per annum, you will have to pay the local council tax. For periods of 20 weeks
or more, you will be taxed under the local business rates. It is probably
best to find out your tax position under both systems so as you can calculate
the worst case scenario. Although many people tend to get a bit worried when the term business rates is mention, in fact you may find this is
the best option for you. Some authorities can allow small business relief and
this can be as high as 50%. If you are going to apply for business rates, make
sure your property is available for letting for in excess of 20 weeks of
the year.
Value added Tax
-
At the time of writing then threshold for
VAT is £60,000. If you earnings from your holiday home rental business
exceeds £60,000 then you will have to register and charge VAT on your lettings.
Many people are content with one or two properties and in this scenario it
unlikely that you will receive more than £60,000 per annum. VAT is a complex
issue and one that should not be dealt with, without first seeking advice from a
qualified accountant. Many people have become confused over the issue of Vat and
ended up charging it when they shouldn't and visa versa.
Capital Gains Tax -
You are allowed to sell your own private family home without Capital Gains
tax, however when you sell a second home or
holiday home, then generally
speaking, you will have to pay
capital gains tax. The rules relating to capital
gains tax on Holiday Homes are fairly complicated and should you be able satisfy
various conditions, you may qualify for taper tax relief which could save you
thousands of pounds. This again is a specialised area and you would be advised to
seek professional help from your accountant before making any decision to sell your
property. Whilst on the subject o0f buying property for investment,
sometimes a chat with an Independent Financial advisor, before you start to add
property to a portfolio may pay dividends. Assetsure work very closely with
financial advisors that are used to helping clients plan for the futures with a particular
emphasis on property purchase.
Inheritance Tax
-
If your property is solely used as for Holiday
Lettings then in all
probability it will qualify as a business asset with regard to inheritance tax.
Of course rules relating to taxation frequently change and your accountant will
be able to help you with this matter. At the present moment inheritance tax is
charged at 40 % on the amount of the estate valued at over £285,000.
However if the property qualifies as a business asset then the tax relief is 100
%. It should be noted that not all holiday let property will qualify for the 100
% tax relief, however that said , the Inland Revenue advanced practice manual
suggests that where a property can be identified as a business asset, then the
relief should be given. Inheritance tax is an issue that should be
discussed sooner rather than later, perhaps a chat to one of our
Independent Financial
Advisors or your own accountant would help you to understand all of the issues
and help you plan accordingly
Taxable Profit -
If your holiday home is located in the United Kingdom, you will be allowed to
deduct certain expenses and tax allowances from your
rental income. If you own
more than one property, you can pool your expenses together to work out your
taxable profit.
The government produce a list of qualifying rules for your income to be
treated as Holiday Let Income. The current rules are as follows.
- The Holiday home must be in the United Kingdom.
- It must be fully furnished.
- It must be available to be let as a holiday home for no less than 140 days
a year.
- It must be let as a Holiday Home for at least 70 days in one year
- It must be let on a short term basis of no more than 31 days.
- It must be let as a Holiday home for at least 7 months of the year.
If you meet all of the above, you will be able to let the holiday home for
whatever period you like in the remaining 5 months. If however a let is in
excess of 31 days in this final 5 month period, then it will not qualify as a
holiday let.
Allowable Expenses -
Knowing what you can and cannot claim for from your holiday let business is
vital and there are a number of times that you are currently allowed to claim
for. A good rule of thumb is that if the expense is solely for the use as a
holiday let then you will be able to claim against tax. Remember always to keep
your receipts.
- Accountancy Charges- Amounts
payable in respect of the preparation of your holiday home business accounts
although you not allowed to claim for amounts charged for preparing your tax
return.
- Advertising. Any
successful Holiday Home rental business needs advertising and you can claim
for the cost of advertising your property on property websites, magazines
etc. You may also claim for the cost of printing brochures and for the cost
of postage.
- Rent/Council Tax/Insurance. All
of these items you can claim against tax. Some ground work on your part to
make sure that the council tax rather than the rating structure better suit
your needs..
Interest
-
Interest you have to pay against loans acquired to improve the property to
making ready for letting together you any interest payable on loans to
purchase furniture etc foe the property.
Heating & Lighting- You
can claim for you gas, electricity and any fuel charges relating solely to
your holiday let property. If the property adjoins your own, then you can only
claim for the portion that is let.
General Repair.- To
be successful, you will have to keep the property in tip top condition, you
are allowed to claim for the cost of general maintenance including painting
& decorating.
- Additional Services. You
may be able to claim for any additional services that you provide at the
premises such as a gardener or caretaker, you will need to speak to your
accountant about this.
Outside- If
you cottage has a garden, you can claim for the cost of its upkeep or for
stocking it with plants etc in preparation for letting.
- Crockery/Cutlery/Bed Linen- These
are all items that you can expect to replace on a regular basis, they all
have a limited life especially in a holiday home, you can claim for them against
tax.
- Phone Bills.- If you have to use your
own telephone to make calls with regard to the letting of your cottage.
Cleaning items. Any
consumables purchased for use at the holiday home are claimable, items would
include, soap, washing up liquid, dusters, dishcloths, toilet cleaner,
bleach, toilet roils, light bulbs, bin liners etc.
Travelling Expenses- You
may claim an amount based on your annual mileage to and from the property,
providing of course it is in connection with the business. Your accountant
will be able to advise you on this.
Overseas property insurance and holiday home insurance for.... Australia,
Austria, Belgium, Brazil, Bulgaria, Canada, Cape Verde, Croatia, Cyprus, Czech,
Denmark, Egypt, Estonia, Finland, Germany, Greece, Hungary, Iceland, Italy,
Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Morocco,
Montenegro, Netherlands, Norway, Poland, Portugal, Ireland, Romania, Slovakia,
Slovenia, South Africa, Sweden, Switzerland, Thailand, Turkey, United Arab
Emirates.
