Are you fed up with being targeted by HMRC for being a residential property investor? In the recent budget George Osborne made it clear he won’t be backing down on his war against buy-to-let investors, announcing that the 3% stamp duty surcharge will definitely go ahead and that while the capital gains tax (CGT) rate will be cut, this won’t apply to residential properties.
Some of the recent negative tax changes do not apply to holiday lets and serviced apartments and there are a number of tax benefits to investing in this type of business.
Current Headline downsides for residential property investors:
Tax relief on mortgage interest to be limited to 20%
Withdrawal of the 10% wear and tear allowance for furnishing your property
When Compared to holiday lets:
Capital allowances — you can claim capital allowances on the furniture and other items that you buy for the property, which may be higher than the 10% wear and tear allowance. Accommodation is considered to be ‘furnished’ if the tenant is entitled to the use of furniture. In practice, due to the nature of holiday lettings, queries about whether the accommodation is furnished are unlikely to arise.
Losses on holiday lets may be property losses offset against your total income(including employment income), provided the loss was due to the above capital allowances. Any claims of this nature must be made within 22 months after the year end when tax relief is given.
Examples of capital allowances for holiday lets:
- tools used for maintenance
- office equipment used in running the rental business
- fixtures in a let property
Holiday lets/serviced apartments are still treated as property income for tax purposes under Schedule A of your self-assessment, unless you are in a partnership or run the business through a limited company.
How a property qualifies as a holiday let/serviced apartment
For your property to qualify as a holiday let a number of qualification tests for holiday lets need to be passed. These include:
- The property must be let out on a commercial basis to make a profit
- The accommodation must be available for commercial letting to the public generally as holiday accommodation for not less than 210 days per year
- The periods for which it is let must amount (in the aggregate) to at least 105 days per year
- The property must not normally be in the same occupation for more than 31 days (known as ’longer term occupation’). If it is, these periods do not count towards a year’s qualifying number of days, and if these ‘longer term occupation’ periods add up to more than 155 days in any year, your property will lose its holiday let status for that year