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Tax Alert 30th April 2019 – should you invest in Furnished Holiday Letting?

Tax Alert 30th April 2019 – should you invest in Furnished Holiday Letting?

TAX ALERT

FURNISHED HOLIDAY LETTING – WHAT’s IT ALL ABOUT?

Residential landlords have certainly been taking a tax bashing over recent years.  Many landlords may now need to assess whether they can continue with so many tax charges now levied upon them.  It comes as no surprise that attention is focusing on different ways in which to invest in property.  One area that has been grabbing attention is Furnished Holiday Letting (FHL).

IS FHL THE ANSWER?

There is no question that if you have a property that can be let under the conditions to qualify for FHL, there are some attractive tax benefits.

Unfortunately, for many existing landlords FHL will not be a quick fix, as there are strict rules for meeting the FHL qualifying conditions.

The main clue lies with the description holiday letting, rather than having a few long-term tenants, the property must have multiple short lets.

NEW DIRECTION

Your existing property may not be suitable to qualifying for FHL but if you are a prospective investor or an existing investor looking to invest in a new property, FHL may be worth considering.  Perhaps you already own or have inherited a holiday property that you are not making full use of, with a bit of planning you may be able to turn it into a profitable business.

FURTHER INFORMATION

If you are looking for further information about FHL, Paul Southward has produced two guides to provide you with more information about FHL, the rules and the tax advantages.

The topic of FHL has recently become hot gossip at the moment but as is often the case they may not always be painting the full picture.

For a summary of the qualifying conditions for FHL, download Paul’s guide here:-

FHL – Qualifying Conditions

And for a summary of the main tax advantages see Paul’s guide here: –

FHL – Tax Benefits

For more information contact Paul Southward.

Paul Southward

Good news on the horizon for landlords

The taxman is becoming quite adept at sleight of hand tricks, whereby tax rules and reliefs are mysteriously changed or removed overnight.  On such relief was for landlords of unfurnished properties and the withdrawal of what was known as the ‘renewals’ relief.  Under this practice landlords could claim relief for the renewal of items in their rental properties such as; fridges, carpets, curtains, beds etc.  From 6 April 2013, the taxman made the renewals basis disappear, leaving landlords potentially out of pocket, when renewing items in their properties.

Landlords who let properties fully furnished were not able to claim the renewals relief but are entitled to an annual wear and tear (W&T) allowance based on 10% of the rental charges, and this was intended to cover the costs of renewals.  The W&T allowance is still available and this has led to a somewhat uneven pitch for landlords.

The good news is that the taxman is aiming to level the playing field for landlords.  HMRC have published a consultation document in which it discusses proposals to replace the W&T allowance with something that looks remarkably like renewals relief!

Under the proposals the initial cost of furnishings etc. will not be allowed as a deduction against rents (like it was under the renewals relief).  The cost of renewing items provided for the tenant’s use in a rented property will be allowable as a deduction (as was the case under renewals relief).

It should be noted that fixtures integral to the property such as baths, fitted kitchen units and boilers are not included.  However these costs would normally be allowable as a repair the property.

So as I see it, the result of the new proposals are to remove the W&T allowance for landlords of fully furnished properties and reinstate a sort of renewals relief for all landlords.

If the proposals go ahead the changes will come into effect from April 2016, so landlords may need to look closely at the timing of replacing items in their buy to let properties.

The consultation can be viewed on the GOV.UK website  at  https://goo.gl/eIz4De.

The consultation will be open until 9 October 2015 and any responses should be e-mailed to wearandtear.replacement@hmrc.gsi.gov.uk before that date.

We advise clients on all aspects of their rental income business, it makes sense to talk to us.

Landlords and HMRC’s let property campaign

If you are a landlord and you are confident that your tax affairs are up to date and that all your rental income has been correctly declared, then all is well.

If you are a landlord and you think that you may not have made the correct disclosures to the taxman; then you may want to take action before the taxman comes knocking on your door!

Advances in technology coupled with the increase of powers available to the taxman have enabled him to access a whole heap of information regarding property transactions and property rentals across the UK.  It may be a slow process but the taxman is now linking the information held, to property owners, and is making enquiries.

In the past, HMRC have successfully used campaigns to encourage voluntary disclosures from individuals for whom the taxman may have information about undisclosed tax liabilities.

One of the more recent disclosure campaigns is aimed at Landlords.  The scheme covers more or less anyone who has received income from letting out a property, properties and even rooms in their main house (subject to certain exemptions).

So why volunteer a disclosure?  Quite simply, to benefit from a more lenient settlement with HMRC than would be available if HMRC discover that you owe taxes and have not made a disclosure.

The taxman can charge penalties of up to 100% (200% for certain offshore liabilities) of the tax due for failing to notify a tax liability or for making an inaccurate return.

Under the let property campaign the taxman may agree to a much lower penalty, of say, 20% or less, and in some cases £nil.

At the moment there is no set time limit for someone to make a disclosure under the let property campaign, however, a delay in doing so could result in higher penalties.

You can of course make a disclosure directly to the taxman; however, we believe that we can offer you more.  If you engage us to assist with your disclosure we will make sure that you claim all the appropriate deductions that you are entitled to, and ensure that you only pay the correct amount of tax; this will also help minimise any penalties charged.  We explain and guide you through the whole process and deal with the taxman on your behalf to ensure that you get the best possible deal, and give you peace of mind that your tax affairs are brought fully up to date.

If you would like to discuss your particular circumstances in confidence, contact Paul Southward.