Tax Relief

Your Guide to Furnished Holiday Lettings

2 min read

Much of the country is holidaying in the UK due to the current uncertainty around foreign travel, which has led to increased rents for UK furnished holiday lets (FHL). This article looks at the tax benefits of investing in such properties.

What is a Furnished Holiday Let?

In order to qualify a property should be fully furnished, commercially let and satisfy all of the following:-

Availability – It must be available for letting as furnished holiday accommodation for at least 210 days in the year.

Letting – It must be let as furnished holiday accommodation to the public for 105 days a year. You cannot include long term lets of more than 31 days.

Pattern of occupation – The total days where lettings exceed a continuous 31 days cannot exceed 155 days.

It is possible to average the days across properties where you have more than one FHL and you can make a period of grace election in certain circumstances when you have not quite satisfied the tests.

Income Tax

Capital allowances can be claimed on furniture and furnishings. You cannot claim relief on the original purchase of these items for ordinary residential lettings. There is greater flexibility for splitting profits with a spouse compared with ordinary residential lettings.

A significant advantage of FHLs compared with normal residential lettings is that there is no restriction on tax relief for interest payments for higher rate taxpayers.

Capital Gains Tax

Disposals of FHLs can qualify for Entrepreneur’s Relief which are taxed at 10% as opposed to the normal 18%/28% for residential properties. Gifts of FHL are deemed to take place at market value for capital gains purposes. An individual gifting a FHL can claim hold over relief so that no capital gains crystallize at that time.

This can be particularly beneficial for passing a FHL to the next generation as it is unlikely that a FHL will qualify for Inheritance Tax business property relief.

Capital Gains Rollover Relief is available where proceeds from the sale of a business asset are reinvested into another business asset. A FHL is a qualifying business asset. At Loucas, we help clients with a wide range of business interests including furnished holiday lets (FHL).

If you are considering buying a FHL or would like to discuss an existing property or portfolio, Loucas would be happy to advise on the matter.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Selling Part of your Garden

2 min read

Pressure on local authorities to increase the housing stock in the UK has meant that more and more home owners have had success in obtaining planning permission and selling part of their garden to a developer or developing the land themselves.

The tax implications of such transactions are not straight forward. One needs to consider whether the transaction is a capital transaction or if it constitutes a trade and is therefore, at least partly, liable to income tax.

Trading or Capital

Normally HMRC will accept that the transaction is a capital one, if the only way you have enhanced the property is by obtaining planning permission.

However, if you purchase the property with a view to making a profit on the sale of the garden then HMRC would argue that it is a trading transaction and liable to income tax.

Similarly, if you develop the land yourself or are entitled to a profit share on the eventual sale of the developed property, you would be deemed to be trading and at least part of the profit will be liable to income tax.

Principal Private Residence (PPR) Relief

If the transaction is capital in nature, then it is possible PPR relief is available. PPR relief allows gains on the sale of the majority of main residences to be free from tax entirely. You can sell part of the garden and still qualify for the relief.

The relief extends to land of half a hectare (including the plot of the dwelling house), but this can extend to a larger area where it was required, for the reasonable enjoyment of the residence.

Therefore, if the garden being sold has been used as part of the residence and is within the half a hectare, it should qualify for PPR and no tax would be payable on disposal.

If it is outside the half hectare, you would need to be able to show that the larger grounds/garden were necessary for the reasonable enjoyment of the property. This could be difficult to prove as the fact that you are selling the garden separately from the main house would indicate it was not required for the reasonable enjoyment of the property.

However, there could be circumstances where you had to sell the land, for example out of financial necessity, and relief may still be available in this scenario.

How we can help

If you have any questions, our team of expert Accountants would be happy to assist.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Covid-19: The tax implications of working from home

2 min read

Employees who work from home due to measures to control the coronavirus pandemic are covered by home-working expenses rules, HMRC has confirmed. Many of us are now working from home as offices are closed during the COVID-19 pandemic. This can mean additional expenditure for both employers and employees.

What tax reliefs are available?

Employer Reimbursed costs

Employers can make payments to employees to cover the reasonable costs of working from home.

Payments of fixed amounts of £6 per week or £26 per month can be paid tax free.

In order to qualify the employee must work at home regularly as part of a homeworking arrangement.

HMRC have confirmed that during the COVID-19 pandemic employees working from home because their office is closed or if they are following advice to self-isolate will meet these requirements.

Other working from home considerations

Alternatively the employer can reimburse the actual increased costs of working from home but this can be onerous to calculate and to evidence.

If an employee does not have internet access and needs this to work from home the employer can reimburse the costs of the internet connection tax free.

An employer can also purchase office equipment and furniture for an employee. Provided there is no significant private use there will be no taxable benefit in kind.

Prior to the COVID-19 pandemic an employee would be taxed on monies received if they had purchased office equipment and then been reimbursed by their employer. However, a temporary tax exemption has now been made for such reimbursements.

Relief for Employee Costs

If the employer does not pay the fixed amounts for use of home costs  it is possible for employees to make a claim for tax relief using the same scale rates of £6 per week or £26 per month. Again the actual additional expenditure can be claimed with the suitable evidence.

The relevant expenditure is additional heating and light costs and metered water

In addition an employee can also claim the cost of any extra phone costs due to business calls.

Claims for relief by an employee for the cost of office equipment that is not reimbursed by an employer should be approached with caution. To qualify costs have to relate to equipment used in the performance of an employee’s duty. Items such as desk and chair would arguably not qualify as they put you in a positon to perform your duties.

Additionally, HMRC will only accept a claim for computer equipment in limited circumstances as they would normally expect the employer to supply such equipment or at least make it available if it was necessary for the role.

If you are unsure on the tax treatment of working from home, or have any other employment tax queries, our team of expert Accountants would be happy to assist.

Stay up to date with the latest news. Read more on tax exemptions for home office expenses here.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

Business Asset Disposal relief (Previously known as Entrepreneur’s Relief)

2 min read

Business Asset Disposal Relief, is available for those in business, which may reduce the tax rate on the first £1 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

BADR is available to individuals on the disposal after two complete qualifying years of:

  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual’s ‘personal’ trading company
  • assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for BADR, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of Business Asset Disposal Relief are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

IR is available to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your BADR planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.