30
GM BUSINESS connect
June/July 2016
finance
Counting the cost of your
holiday home
Summer is here and as we approach warmer weather (or hope to) the thought of summer holidays also provides something to look forward to, be it a planned escape, or income generated from a holiday home. With the latter in mind, we have decided to take a look at some of the key tax issues holiday homeowners need to be aware of when letting out property. There are a number of unfavourable tax changes for mainstream buy-to-let owners being implemented following the Budget, and it is therefore essential that these changes are understood by landlords to avoid being caught out further into the tax year. So in this issue, our finance expert, Les Leavitt, Managing Partner at local firm LWA, provides an overview of the main tax changes affecting buy-to-let properties overall, including holiday home-owners.
Stamp duty on buying secondary properties Any property purchased other than your primary home as a buy-to-let property that is worth more than £40,000, will now attract a stamp duty surcharge of 3%. This can eat massively into long term returns on buy-to-let property investments.
For example, the stamp duty on a £500,000 house for buy-to-let will be £30,000, or 6% of the purchase price.
investors, will pay more in CGT when selling those properties.
Tax relief on buy-to-let mortgage interest payments to be slashed
Although buy-to-let investors took a hit in the latest Budget announcement, the one small corner of the buy-to-let market that seems to have been left alone is holiday lets, as the changes announced to tax relief for interest not affecting the furnished holiday lettings tax rules.
Originally, a basic rate taxpayer would get 20% tax relief on buy-to-let mortgage interest payments; higher rate taxpayers would receive 40% relief; and top-rate taxpayers could claim 45%. Now, this is all due to change, with tax relief being at a flat rate of 20%, something that will affect those on higher incomes, resulting in them losing much more from buy-to-let mortgage interest payments.
Capital gains tax surcharge for landlords selling property Landlords will now face a Capital Gains Tax (CGT) surcharge compared to other types of investors. The basic rate of CGT will be cut from 18% to 10% and the higher rate will be cut from 28% to 20%, but unfortunately the gains made on residential property sales are not eligible for the new lower rates. Existing rates will instead be maintained, equivalent to an 8% surcharge, meaning those with second homes, and buy-to-let
Good news for holiday lets?
As it stands, if you buy a property and proceed to let it out for holiday use, you will still be able to set your full mortgage interest repayments against tax - good news for holiday homeowners! Not only this, but full capital allowances will still be claimable, meaning that if you decide to renovate a property for holiday use or buy new furniture, that cost can be fully deducted from rental income. The benefits to renting holiday homes don’t stop there either, as furnished holiday lettings are actually classified as business assets for capital gains tax purposes, a result of which means that the tax is levied at only 10%. To be eligible for these benefits if you have a holiday home that you let, the following must apply:
• Your holiday home is open to guests for at least 210 days a year. • Your holiday home is let for more than 105 days a year. • No single guests stay for more than 31 days. • You charge the market value as similar holiday homes in the area. As long as these criteria are met, there is nothing stopping you from staying at the property yourself, however it is important to take into consideration that this will considerably reduce your tax allowances. With all of this in mind, it may be time to consider leaving conventional buy-to-let behind and look towards holiday lettings instead, and what better time to do this than summer?
Les Leavitt Leavitt Walmsley Associates Chartered Certified Accountants www.lwaltd.com
ELIGIBILITY CRITERIA FOR HOLIDAY LET TAX BENEFITS Your holiday home is open to guests for at least 210 days a year
Your holiday home is let for more than 105 days a year
No single guests stay for more than 31 days a year
You charge the market value as similar homes in the area
