The Jonathan Ford & Co Advent Calendar – Day 14
Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! A glimmer of relief for downtrodden residential landlords lies in wait behind door number 14…
Convert your buy to let to a furnished holiday let
Successive governments seem to have a big problem with residential landlords if the raft of tax measures introduced over the past three years is anything to go by.
We’ve seen higher capital gains tax (CGT) rates on residential properties than other assets, the shortening of CGT deadlines, an increase in stamp duty, the removal of higher rate tax relief on finance costs and the reduction or effective abolition of valuable reliefs such as principal private residence and lettings relief.
The removal of higher rate tax relief on finance costs in particular is the most horrendous piece of tax legislation I have ever seen.
There is, however, a strategy that can be employed to avoid some of these negative impacts and that is to rent your property as a furnished holiday let (FHL) rather than a long term let.
The finance cost restriction doesn’t apply to FHLs and capital allowances can be claimed on fixtures, fittings and white goods.
FHLs also qualify for the lower rates of CGT. In the right circumstances, FHLs may qualify for CGT Entrepreneurs’ Relief and even Business Property Relief for inheritance tax.
To qualify as an FHL:
- The property must be located in the UK or the European Economic Area (EEA). The EEA is the EU member states plus Iceland, Liechtenstein and Norway
- The property must be furnished sufficiently so as to allow normal occupation
- You must intend to make a profit, not just hold out for growth in the value of the property
- The property must be available to let on a commercial basis for at least 210 days in the year
- The property must actually be occupied on a short let basis for at least 105 days in the year. A short let covers a period of no more than 31 days
- The total of long lets during the year cannot be more than 155 days
With the rise of Airbnb, offering short lets has become much easier. It’s therefore well worth considering if the location of your property would be conducive to those requiring short lets, such as holidaymakers, sports fans or business travellers.
