Holiday let taxation

claire111

Hi

I am trying to find out if holiday lets that are 'Annexes' or 'Part of a main residence' are treated any differently than those which are 'stand-alone' such as cottages , when it comes to income tax and capital gains tax.

My research so far suggests there is absolutely no difference as far as the tax man is concerned would this be correct ?

Many thanks

Claire

lincroft1710

Usually an annex cannot be sold separately from the main house, so CGT would only apply to the business part i.e. the annex. If the annex could be and was sold separately then CGT would also apply.

This link is very helpful

https://www.gov.uk/tax-sell-home

Unless there are special terms for income from an annex (which I doubt!) then any income received would be taxed at normal rates.

You may get a better response by posting on the Cutting Tax board

da_rule

It shouldn't make any difference in relation to income tax. The Rent a Room scheme might need looking at as it is open to B&B owners etc. Them being in an annexe might be a problem for this as it is not a 'room' in the main building.

If part of a property is used for business use then there may be a charge to capital gains tax.

da_rule

Capital gains tax rules on Private Residence Relief states that the relief will not be available if "part of your home has been used exclusively for business purposes during your period of ownership."

Therefore if the annexe has been used solely for business you could have a charge to CGT.

claire111

Thank you I will cross post to the Tax board.

The income will be too high to for Rent a Room and it will not be B&B. It will qualify as a Furnished Holiday Let.

booksurr

If you wish to let it as FHL then you do so for the very good reason that there are significant tax advantages to FHL compared to non FHL property rental income.

It would seem you are familiar with the basics of FHL and the qualifying tests?
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4100

It also seems you are familiar with the rent a room limitations, particularly the question of whether the annex is a temporary separation of a part of your main residence and therefore would qualify you for RAR. If it isn't temporary then RAR is irrelevant anyway.
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4004

Returning to the presumption you wish to operate as an FHL the fact it is an annex rather than a stand alone cottage presumably means it does not have separate meters for utilities etc(?) and so you will need to take note of the rules around apportioning costs between your residence and the FHL. see the section on "Part only of property let
Where only part of a property is let as furnished holiday accommodation, receipts and expenditure should be apportioned on a just and reasonable basis."
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4120

the CGT question will depend on whether you wish to take advantage of the special rules available to FHL property?
https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet

claire111

Thank you all for your replies.

I have read all the links and just about understand them - if we go ahead with the project I will definitely need an accountant/tax advisor before we buy or sell anything !

If anyone knows the answer I have one more point to clarify -

I think I understand that the property and mortgage could be in my partners(boyfriends) name but that I could run the business and therefore have the income assessed as mine. I think I have read that the income can be split any which way that we choose. Is it as simple as that or would the property and mortgage also need to be in my name ?

TIA

Claire

booksurr

claire111 wrote: »

I think I understand that the property and mortgage could be in my partners(boyfriends) name but that I could run the business and therefore have the income assessed as mine. I think I have read that the income can be split any which way that we choose. Is it as simple as that or would the property and mortgage also need to be in my name ?

you are correct in thinking that if unmarried (i note reference to BF not husband) the share of the income can be split in whatever way you want

BUT

in order to have a share of the income you must be entitled to that share, entitlement means you are a co-owner so no you cannot do what you propose unless you are on the deeds with your BF. Tax follows entitlement otherwise anyone could give money away to anyone else and avoid paying tax on it themselves even if it was they who "earned" it

To be on the deeds the vast majority of mortgage lenders will require you to also be a party to the mortgage - that may or may not affect the amount you can borrow as a couple depending on the affordability criteria used by each lender...

claire111

Thank you so much thats really helpful.

Yes - unmarried.

If I purchase a small share of the property for cash would that then give me entitlement to the income ?

Not trying to do anything underhand here its just that my partner is a high rate tax payer and I already have a property in my name...

Ozzuk

Just a thought...if you are part of the purchase then as you have a property already then you could be liable for higher stamp duty. Worth checking.

You could also need a commercial mortgage (whichi is usually much more expensive), I know I did when I bought holiday lets but the fact yours is part residential complicates it. Oh and business rates will likely be chargeable on the annex (or 2nd council tax if it isn't used for business but has a kitchen/bedroom).

p00hsticks

claire111 wrote: »

If I purchase a small share of the property for cash would that then give me entitlement to the income ?

I'm not an expert but my understabding is that the default position by HMRC is that the income is apportioned in the same way as the ownership - so, for example, if you own 10% of the property you are entitled to 10% of the income