Furnished holiday let and tax

73Jonathan123 · 26 November 2017 at 7:57PM

So I bought a very run down property and spent two years doing it up as a furnished holiday let. I went to see an accountant and I was sure he told me that the money I spent doing it up could be entered as expenses once I was letting it out.
I saved all my receipts, about £18k worth and was very excited about getting some tax back this year as I finally started letting it out in 2016. I took them to the accountant in May.
Finally this week I got the self assessment for to sign and was gutted to see nothing in it for all the money spent in the previous tax year doing it up.
I know tax isn't there to be fair but this seems 1) Not what I had been told 2) Unfair because if I'd started letting just a little earlier I could have put all that money in as expenses.
Did I get it completely wrong? Is all the money spent on furnishing and insulating and redoing the kitchen and laying the floors - all that can't be claimed against?

Also, is there a thread anywhere on furnished holidays lets and what s claimable and what is not?

Thanks

Pennywise · 26 November 2017 at 8:03PM

This is a very complex area with a few court cases. Basically, if you bought the property at a discount because it wasn't in a fit state, the costs of bringing it up to standard are "capital", i.e. basically added to your cost of purchase to be set against eventual CGT on sale. You get tax relief, but not against trading income, you get it against CGT instead.

Basically, only "repairs, renewals and maintenance" are allowable against trading income, and not any element of improvement.

I suspect that your accountant didn't realise you were going to spend such a high amount on it between buying and letting out. A few hundred or even a few thousand wouldn't raise eyebrows, but £18k is a huge amount that is highly unlikely to have gone unchallenged.

chrismac1 · 26 November 2017 at 8:31PM

Mmm. £18k is small beer when it comes to FHL refurbishment. The highest spend one of my clients has made was £200k, but I am in the Lake District so lots of FHLs.

However, it is worth noting that:

1. FHL losses can no longer be set against other income, just future FHL profits.

2. Capital Gains Tax is a very real consideration. So for example, one of my clients who - in my view, see Pennywise post re. "grey area" nature of this stuff - could have claimed £80k on refurbishments elected to claim only £40k as revenue and the rest as capital.

3. That turned out to be a great idea, as the £40k which was claimed as capital came in very useful when the FHL was sold 2 years later.

So ask your accountant the reason, and you might well find out it makes a lot of sense.

73Jonathan123 · 11 January 2018 at 10:28PM

Ok, so my tax return now shows 22k as to be taken forward. I asked if I could not just get it as a tax refund so that I could invest it elsewhere. The accountant said:
"No it is not possible to get it back. We will keep using it in your returns until the loss has been used up.
In essence you won’t need to pay tax for a few years. "
Is this really the case? I wanted to use the money.

Gabbs_the_Newt · 11 January 2018 at 10:56PM

73Jonathan123 wrote: »

Ok, so my tax return now shows 22k as to be taken forward. I asked if I could not just get it as a tax refund so that I could invest it elsewhere. The accountant said:
"No it is not possible to get it back. We will keep using it in your returns until the loss has been used up.
In essence you won’t need to pay tax for a few years. "
Is this really the case? I wanted to use the money.

That is correct - your losses can be relived against the next available profit from the same trade. You can’t just claim the money back, that is not how loss relief works.

In the long run it is exactly the same result, but HMRC are not going to dish out a cheque just because you have made an investment.

[Deleted User] · 12 January 2018 at 8:31AM

73Jonathan123 wrote: »

Ok, so my tax return now shows 22k as to be taken forward. I asked if I could not just get it as a tax refund so that I could invest it elsewhere. The accountant said:
"No it is not possible to get it back. We will keep using it in your returns until the loss has been used up.
In essence you won’t need to pay tax for a few years. "
Is this really the case? I wanted to use the money.

Look at it this way. You have spent £18k on refurbishment. Presumably the value of the property has increased, perhaps by even more than this amount. That is where your money is now.

73Jonathan123 · 12 January 2018 at 8:33PM

Thanks for the responses. Very helpful.
What happens if I sell the FHL before all the tax has made its way back to me? It could take a good few years for that to happen!

chrismac1 · 13 January 2018 at 3:22PM

This thread is useful for other users. These issues should be considered BEFORE you buy the place and spend the money.

To answer the question, rental losses will carry on in the FHL pot against future FHL profits. Capital spends will reduce a potential capital gains tax bill on sale, and in fact one reason for hiring an accountant is precisely this sort of advice. Several times I've saved clients tax by advising them NOT to claim expenses as FHL expenses, because by deeming them as capital we reduced or eliminated the CGT bill on sale.

73Jonathan123 · 14 January 2018 at 9:00PM

chrismac1 wrote: »

This thread is useful for other users. These issues should be considered BEFORE you buy the place and spend the money.

To answer the question, rental losses will carry on in the FHL pot against future FHL profits. Capital spends will reduce a potential capital gains tax bill on sale, and in fact one reason for hiring an accountant is precisely this sort of advice. Several times I've saved clients tax by advising them NOT to claim expenses as FHL expenses, because by deeming them as capital we reduced or eliminated the CGT bill on sale.

thanks for the reply. I don't really understand though. I ended up with the FHL because there was a small property adjoining mine that had fallen into serious disrepair and was causing damp, rot etc in mine as a result. So I bought it cheaply and did it up. I don't know what the difference between rental loss and capital spends means. My accountant is not forthcoming with advice or information so I really don't know what I'm doing but I want to make the best of it.

00ec25 · 14 January 2018 at 11:01PM

73Jonathan123 wrote: »

I really don't know what I'm doing but I want to make the best of it.

then you need to learn the difference between capital expenditure (which is a cost to be offset against CGT when you sell) and revenue expenditure (which is a cost against your annual profits subject to income tax)

you have a lot of reading ahead of you, this may be a start:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2020

having done that, then return to post #2 above and see why it remains a grey area in terms of initial purchase of a property in "poor" condition

Pennywise · 15 January 2018 at 9:17AM

73Jonathan123 wrote: »

My accountant is not forthcoming with advice or information so I really don't know what I'm doing but I want to make the best of it.

Then you need to change accountants. There are lots out there and it's easy to change.

Furnished holiday let and tax

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free