Tax blow for owners of British holiday lets

chucky

Thrugelmir wrote: »

For someone that trumpets how they operate so tax efficently. I'm surprised that you didn't work out the advantages of a holiday let. Particularly as all losses including mortgage interest were allowable against personal tax.

i have zero interest in holiday lets, despite your concern.

pretty nifty tax loop hole - good on them that did well out of the holiday lets business

StevieJ

treliac wrote: »

So having a holiday let is more worthy than having a buy to let?

Providing holidays for people in this stressful life is indeed worthy but no more worthy than putting a roof over Carols head

julieq

Probably less hassle when the plumbing needs fixing though

Pennywise

So much prejudice and uninformed speculation here.

Firstly, it was the last Labour Govt that wanted to scrap ALL tax benefits for holiday lets resulting from an EU directive that all holiday lets in the EU had to be treated the same for tax purposes - the previous rules applied to holiday lets in the UK only - so thank you EU! The Tory proposal is far better in that it continues to allow the tax breaks for "real" holiday lets - i.e. those let out for realistic numbers of weeks and allows the tax relief on lets in all EU countries - so actually quite an improvement on the Labour plan.

Secondly, holiday let owners have never been able to offset "ALL" their mortgage and other property costs against their tax. They have always had to pro-rata their costs between periods when it was available for holiday letting and periods when it was occupied by themselves, friends & family at non-commercial rates. So if it was only available for letting half the year, the other half being occupied by themselves and friends, or let out for long term tenants, then only half the annual costs would be allowable to set against their other taxable income.

Thirdly, many local planning committees won't grant planning permission for permanent dwellings in rural areas. They often stipulate that, say a barn conversion, can't be permanently occupied and can only be used as holiday accommodation. This means that the locals could never have lived in the property even if the prices were low enough that they could buy. This is a real travesty and the planners should be condemned for it, but somehow it's never really publicised! There is a development near me where this planning restriction is in force - the developers just can't get any investors to buy several barn conversion units yet there is a lot of local interest from people who actually want to buy to live in - they keep appealing to the local planners to allow proper residential status but are constantly knocked back and are now looking to go for public enquiry - the prices are easily within affordable price ranges for other comparable homes in the area, so the only thing stopping locals buying them is the planning restriction!

Fourthly, many "holiday lets" are on farms etc., where a farmer has converted a barn or granary, or tied cottages, etc., more to make ends meet than become a property mogul. For years, people have been telling farmers to diversify, and now they're being attacked for doing exactly what they've been encouraged to do. Many farmers never intended to become landlords - they just want to farm - they've been forced into it by pressure and also the need for farms to diversify etc.

Finally, the moves are likely to increase the costs of renting a holiday home. Many owners, particularly those who have bought in the last few years, will be making a loss, only to be made worse when interest rates start to increase again. If they can't get tax relief for their losses, then the whole thing starts to crumble. They'll either have to raise their charges, making it more expensive for people to rent a holiday home, or they'll just sell, maybe for residential, reducing the number of holiday homes, thus increasing the prices due to lower supply.

I, for one, think the Tories have cracked it with their plan. It won't hurt the genuine holiday home owners and to be blunt, the non-genuine ones don't deserve tax breaks anyway. By contrast, the Labour proposals would have hurt the genuine businesses. Anyone knocking the Tories over this clearly don't understand the Labour alternative!

PasturesNew

Round My Way ... there are thousands and thousands of holiday lets. Even next door to me is one this year.

The loophole being closed is just that if you buy one and it makes a loss (on paper), you can join that income/loss onto your day job earnings (employment) and divvi up your tax based on the two combined.

So, if you were (say) earning £100k/year (as a couple in London let's say)... then you'd be paying 40% tax on about £20k of that. So between you, you'd pay about £8k tax.

But, if you buy a place somewhere lovely and it loses money ..... you can deduct those losses from your £100k income, potentially reducing your income so you're under the higher rate tax band. Big winnings all round.

Now you can't. Now it's up to YOU to pay for your own holiday home.... and not me, the taxpayer, the taxpayer who lives in an area where a lot of people are priced out because there are so many holiday homes, most left empty.

Imagine a block of flats (I could list 20 here within 1 mile of me), all 100% empty all of the time.... holiday lets.... empty. They're making a loss, probably offsetting some bugg4h's tax somewhere.

And, having had that tax break, when you sell your holiday home, it'd have previously gone up in value a LOT ... and there were probably some CGT gains to be wheedled out of somewhere too.

CLAPTON

It does seem a little strange that so many genuine businesses run at a loss; I always thought that the purpose of running a business was to make a profit (always excepting the early couple of years when establishing the business)

also seems a little strange that if some-one is genuinely running a holiday letting business that they have the time to have other earned income to offset the loss against.

I see no reason why the taxpayer should subsidise some-one's holiday home.

StevieJ

Pennywise wrote: »

So much prejudice and uninformed speculation here.
!

Consider yourself told off Thrugelmir

Pennywise

CLAPTON wrote: »

It does seem a little strange that so many genuine businesses run at a loss; I always thought that the purpose of running a business was to make a profit (always excepting the early couple of years when establishing the business)

also seems a little strange that if some-one is genuinely running a holiday letting business that they have the time to have other earned income to offset the loss against.

I see no reason why the taxpayer should subsidise some-one's holiday home.

Prejudice again!

Am awful lot of genuine businesses do indeed run at a loss, especially when an expensive asset has to be bought upfront and financed by loan etc. It's exactly the same with a factory - very high interest payments at the start, but over time, inflation reduces the cost of interest and eventually the factory will be loan free, highly profitable, paying lots of tax, and the owner can sell it and pocket the proceeds. A holiday letting is exactly the same as a factory. I can't see a difference. And anyway, not all holiday let owners are making a loss - it will only be those who've recently bought at relatively high prices. Many holiday lettings will be profitable and tax paying.

Like other genuine businesses, the business owner doesn't do it all themelves, they have staff! Likewise a holiday let owner will more likely than not contract out their laundry (like most hotels do), have a cleaner on changeover days, and have a handyman to do the repairs. Not all business owners "work in" their business - most successful business owners supervise and don't do the donkey work themselves.

Where someone has bought somewhere nice to spend a few weeks and then let it out for other weeks, then I'd agree with you, but you're letting your prejudice run away with yourself. That's not the case in the vast majority of "proper" holiday lets. I don't really think the average farmer who's converted an old barn into a couple of cottages is really going to live in them himself is he?

The new rules will weed out the "occasional" renters who basically bought for their own use - and that's why the new rules should be embraced and not criticised - they hit the second-homers and protect the true businesses.