FINANCE
Just when you thought there was a let up in the Government’s apparent war against landlords, the ‘Renters Reform Bill 2022’ is now lurking in the shadows. By Paul Webster, Private Client Tax Director at Kreston Reeves
Residential rental market – maybe consider furnished holiday lets The Bill looks to ban Section 21 ‘no fault evictions’ and introduce measures to ensure that properties are maintained to a certain standard. Whilst it is of the utmost importance that all tenants have the right to live in clean and safe accommodation, without being evicted for no good reason, it is envisaged that more landlords will simply look to cease letting activities altogether, rather than continue operating under even tighter rules. It is anticipated that gaining possession of rented properties to sell or move into will become fraught with difficulties. So, what are the alternatives? Well, if your residential let is in an area that is attractive to tourists or short-term business visitors, you could serve notice now and relaunch the property as a furnished holiday let. There are numerous advantages in doing so, five of which are:
❛❛ Another advantage to owners of Furnished Holiday Lets is the ability to hand their properties down to future generations without incurring any CGT ❜❜
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BUSINESS ASSET DISPOSAL RELIEF
Formerly known as ‘Entrepreneurs Relief’, this allows Furniture Holiday Lettings (FHL) landlords to take advantage of a 10% rate of tax on £1m worth of gains in their lifetime. If the property has qualified as an FHL for two years, you can take advantage of this lower rate instead of paying 18% (basic rate) or 28% (higher and additional rate) Capital Gains Tax (CGT) on the sale of a property that has been let on a regular AST up to the date of sale. Those landlords with properties in locations popular with short term visitors such as UK seaside resorts may wish to consider reviewing whether an FHL would be feasible.
ROLLOVER RELIEF
When selling one FHL property, you could opt to ‘roll’ the gain over into the purchase of a more expensive property, which provides a greater annual yield. You could do this with consecutive property purchases, never paying tax on any of the transactions during lifetime, whilst continually scaling up operations. On death, there is a free uplift to market value for CGT purposes and the good news is, the deferred (or rolled over) gains are not revived and so are effectively washed out.
