The holiday season is well and truly upon us and many will be counting down the days until we head to that treasured seaside resort that we yearn to call ‘home’.
But can we make the possibility of owning our own holiday home add up from a tax point of view?
Residential property primarily used for short-term lettings can benefit from attractive tax breaks under the furnished Holiday Lets (FHL) rules. Firstly, FHL’s are protected from the government’s announcement to limit mortgage interest relief for Buy-to-Let (BTL) properties.
In addition, a FHL could qualify for a number of Capital Gains Tax exemptions and reliefs that the normal BTL property would not be eligible for. The most significant being the ability to claim Entrepreneur’s Relief on the future sale of the property, potentially reducing any Capital Gains Tax due from 28% to just 10%; a sizeable saving.
Accommodation can only qualify as a FHL if it passes a number of conditions, relating to the occupancy, availability and lettings of the property. However, it is still possible for you to enjoy some benefit from the holiday home, providing these conditions have been satisfied. Whilst a degree of active management of the property is required, online portals, such as Airbnb, are notably reducing the administration process and workload required by owners.
Business rates will be chargeable on a FHL, which are generally lower than any Council Tax on a second home. However the higher rate of Stamp Duty Land Tax will typically apply on the initial purchase of the property, regardless of whether it is a FHL or BTL property.
If you are thinking of buying a second home in the sunshine, make sure you speak to DY’s Tax Planning team to ensure that you are not missing out on any valuable tax reliefs.