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Paul has moved to pastures new but any of our London team will be pleased to talk to you about this

The Revenue allow a deduction for wear and tear where the property is let with sufficient furniture and furnishings for normal residential use. A second hand bed and a sofa would near enough achieve that goal.

A Trip to Ikea? The withdrawal of the renewals basis and merits of furnishing a let property

Paul Webster - paul.webster@goodmanjones.com

Posted on 24th June 2015

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One of the most controversial and far reaching changes to tax practice introduced by HMRC in the past two years is the withdrawal of ESC B47 with effect from 6 April 2013, which permitted a deduction for the renewal of various household items in respect of a furnished or unfurnished property let. It also enabled landlords to claim a 10% deduction of the gross rental income (less any expenses incurred by the landlord on items usually borne by a tenant), to cover the replacement of carpets, furniture and the provision of smaller items such as cutlery.

Following HMRC’s comprehensive review of the Extra Statutory concessions, many have been removed or enshrined in legislation, including ESC B47- well part of it anyway. Whilst the part of the concession permitting a deduction for wear and tear is now legislated, the ability to claim a deduction for the renewal of capital items such as free-standing white goods and other items of household furniture is no longer possible. This is simply due to existing legislation denying capital allowances on the provision of plant and machinery for use in a normal residential property business, which ESC B47 countered. Despite many of the rules pertaining to a residential let being similar to those of a trade, letting income is for tax purposes still treated as investment income.

As a tax practitioner, I deal with a significant number of clients who have property lets, as do my colleagues so the topic of whether something is allowable or not allowable, revenue or capital, often generates a healthy debate in the office. If you drill down hard enough, read enough articles and study the legislation/HMRC guidance, it is usually possible to come up with some vaguely sensible decision as to how to proceed in so far as expenses are concerned. However, having spent many years explaining to clients that any expenditure incurred ‘wholly and exclusively’ for the purposes of a letting business (as is the case with a trade) should be allowable, to then have to explain that there is no possibility of claiming a deduction for a new carpet in an unfurnished property (or furnished if the wear and tear allowance is not claimed), seems to fly in the face of common sense.

According to HMRC, the impact of these changes ‘was not a significant consideration’ in terms of tax yield, which, in my humble opinion, makes it all the more bewildering as to why they chose to take this course of action in the first place. It has clearly confused and in some cases, antagonised landlords and tax advisers alike. The Revenue suggest that by incorporating the renewals basis previously found within ESC B47 within legislation, a deluge of cases involving tax avoidance could appear. Maybe I am missing a trick but I cannot envisage a scenario whereby an avoidance scheme centres around the replacement of fridges in a residential let!

So, we are now left in a situation whereby if the replacement is of an item such as a cooker in a fully integrated kitchen, a deduction may be claimed but if the replacement cooker is freestanding, a deduction is not allowable. If wear and tear is already claimed due to the property being furnished, the replacement of the freestanding cooker would be covered by the 10% deduction. The Revenue state that replacing items such as hobs in an integrated kitchen are simply repairs owing to the fact that you are not replacing an ‘entirety’, being the whole fitted kitchen and instead, are merely repairing it. However, if you replace a fridge that is free-standing, you are replacing an entirety and due to the withdrawal of ESC B47, no deduction from gross rents can be made.

To ensure that as much expenditure is covered by a deduction from gross rents, it may be that some landlords feel it beneficial to convert an unfurnished property to a furnished one by adding a bed and a sofa. The Revenue allow a deduction for wear and tear where the property is let with sufficient furniture and furnishings for normal residential use. A second hand bed and a sofa would near enough achieve that goal.

All in all, these much publicised changes have not exactly endeared HMRC to the tax profession and the many landlords out there. They have stated that they will ‘monitor’ the position but in the meantime, if you are a landlord, you may wish to carefully consider whether you afford your tenant the luxury of a Bosch for £1,000 or a Zanussi for £200!’

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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the non-resident property owner who is not within Self-Assessment could face some serious problems later on down the line when they come to sell.

CGT for Non-Residents – to Value or not to Value

Paul Webster - paul.webster@goodmanjones.com

Posted on 1st April 2015

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For as long as I have been working in the tax profession, arguably the two best pieces of basic CGT planning have been death and becoming non-resident. I remember in my formative years as a Tax Adviser being somewhat shocked and, admittedly, envious of a client who had emigrated to Australia. In the following tax year they managed to sell a number of properties free of capital gains tax. The simple reason – they became non-resident in the previous tax year and would remain outside the UK for at least five tax years.

From 6 April 2015 the purge on non-residents continues with offshore based individuals owning UK residential property now having to fall in line with those who have not been able to negate their gains by emigrating to some exotic destination. Simply put, non-residents will pay capital gains tax on sales of UK residential property.

Unlike the recently introduced Annual Tax on Enveloped Dwellings, there are no valuation bands determining the charge to be paid and aside from main residence relief, there is no relief available from the charge. The rate of tax for non-resident individuals will be the same as for their UK counterparts, being 18% if the gain falls within the basic rate of tax and 28% if any part lands in the higher rate.

Fortunately, the new rules are not retroactive so the news that a non-resident can re-base the value of their property as at 5 April 2015 has been welcomed. This may sound fairly straightforward but perhaps the biggest dilemma facing overseas UK residential property owners will be the question – ‘should I re-base’ and then having decided to do so, ‘should I obtain a valuation’.

There will be three options available to a non-resident for a future sale of their UK residential property:-

The default position is that the individual’s property is revalued as at 5 April 2015 and only the increase in value from 5 April to the date of sale is charged to capital gains tax on sale. This is the basic default position and it will involve revaluing the property. A disposal could be many years into the future when the value at 5 April 2015 has been long forgotten.
An election is made so that the whole gain from purchase is calculated, as you would normally do with a UK resident, but once that gain is established, it is then apportioned on a days basis between pre and post 5 April 2015 periods, with only the post April 2015 pro-rated gain being charged to capital gains tax. No valuation would be required here.
The taxpayer elects to tax the gain for the whole period of ownership with no re-basing and no splitting the gain pre and post 5 April 2015. Clearly, this would only be worthwhile if there is a loss accruing. Again, no revaluation would be required here.

The easiest options in terms of administrative burden and cost are options 2 and 3 above but what if the non-resident taxpayer does not opt out of the default position in option 1?

Perhaps one of the most common enquiries raised by HMRC on the sale of land and buildings is where the value of a property entered within a Tax Return is disputed. This can happen even where there has been a professional valuation undertaken. These enquiries usually involve the District Valuation expert entering into negotiations with the professional Valuer employed by the taxpayer. Under these circumstances the client and Tax Adviser are able to sit back and wait for the negotiations to be concluded.

But what happens where a formal valuation has not been undertaken?

The Revenue make it clear in their responses to ‘frequently asked questions’ published on 18 March 2015 that it is the ‘taxpayer’s responsibility to accurately value the property’. Although the Revenue state that they do not necessarily expect the taxpayer to make the valuation on or around the 5 April 2015 re-basing date, they advocate making notes as to the general condition of the property for future reference. We would go further and suggest that photographs are kept of the site and a record kept of the published sales prices of similar properties in the area.

One option alluded to by HMRC in the guidance is their post transaction valuation review process, which enables taxpayers to agree a value with the Revenue after a disposal has taken place but before a Return disclosing the transaction is submitted. This could be an attractive proposition for those non-residents already within the Self-Assessment regime. If a property is sold on, say, 1 May 2015, the Return declaring that disposal is not due to be filed until 31 January 2017 so a post-valuation request could realistically be made. It should be noted that the ICAEW (the regulatory body governing accountancy practices) have recently reported significant delays in processing these requests so it may be sensible to factor in sufficient time for the process to conclude.

However, if a non-resident is not within Self-Assessment, the current proposal is that they should submit a Non-Resident CGT Return within 30 days of the completion date. If my mathematics is correct, a post transaction valuation request would not work here because HMRC clearly state within the notes accompany the valuation request form (CG34) that it must reach them at least two months before the filing date. This is slightly worrying!

Consequently, the non-resident property owner who is not within Self-Assessment could face some serious problems later on down the line when they come to sell. Without a professional valuation and no detailed knowledge of the UK property market, a non-resident could be in the unenviable position of having an enquiry that extends for several years with significant professional costs and an unexpected tax bill.

It is not unusual for an enquiry on valuation matters to rumble on for several years and the outcome is not always favourable. Our recommendation is that a contemporaneous valuation is obtained from a professional valuer. The cost of a professional valuation now may well be a small price to pay for greater certainty in the future.

If you are affected by the new rules and would like advice, please contact one of the tax team who will only be too happy to assist. We can also introduce you to a professional valuation expert if required.

CGT rates have changed since this article was written and more up to date information can be found in our 2024 Spring Budget response.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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For properties purchased after April 2012, the value used is the purchase price. HMRC have stipulated that the values need to be reassessed every five years so 1 April 2017 will be the next applicable valuation date.

What are the changes to Annual Tax on Enveloped Dwellings (ATED)?

Paul Webster - paul.webster@goodmanjones.com

Posted on 25th March 2015

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Following a greater than expected tax yield from the introduction of the ATED (Annual Tax on Enveloped Dwellings), HMRC have decided to widen the net over the next two years. Originally, the ATED charge for holding UK residential property within a corporate structure was aimed at those individuals sheltering properties worth in excess of £2,000,000 from Stamp Duty Land Tax. However, HMRC have decided to introduce the following new bandings (with annual charges adjacent):-

Value of Property	Charge
£1,000,000 to £2,000,000	£7,000
£500,000 to £1,000,000	£3,500

The higher banding is operative for the ATED period 1 April 2015 to 31 March 2016, whilst the lower banding will start for the ATED period 1 April 2016 to 31 March 2017.

For both new bandings there will be transitional rules, as HMRC accepts that there may be some delay due to a lack of awareness of the changes. The usual and transitional submission/payment dates for the period 1 April 2015 to 31 March 2016 are shown below:-

Properties in Excess of £2,000,000 (Usual):-
Submission Deadline 30 April 2015
Payment Deadline 30 April 2015

Properties valued between £1,000,000 and £2,000,000 (Transitional):-
Submission Deadline 1 October 2015
Payment Deadline 31 October 2015

Whilst the changes noted above will clearly result in many additional properties being caught, further bad news has come in the form of inflation busting tax increases of around 50%.

For example, a corporate owning a property worth £2,100,000 can now expect to pay a charge of £23,350, an increase of £7,950 on the previous year. The greater the value of the property, the bigger the tax increase. From 1 April 2014, the annual chargeable amounts are being increased in line with the CPI (Consumer Prices Index).

One saving grace is the opportunity to claim relief in certain circumstances. Probably the most common reliefs are where the property is let on a commercial basis or held for development purposes. However, the relief still needs to be claimed through an ATED Return due by 30 April 2015 (or 1 October 2015 for the new banding). Failure to submit a Return and claim relief can result in penalties of at least £1,300 by the time the Return is six months overdue. The penalties are set out below:-

Initial Late Filing Penalty – £100
After 3 Months – £10 Per Day (up to a maximum of £900)
After 6 Months – £300 or 5% of the tax due (higher of)
After 12 Months – £300 or 5% of the tax due (higher of)

Whilst on the subject of relief, where a property is let to a connected party (spouse, child or lineal descendant of the corporate shareholder), no relief can be granted.

Although HMRC do allow taxpayers to Self-Assess the value of their properties for ATED purposes, it should be noted that if HMRC challenge and the value proves to be incorrect, penalties can be levied. The penalty regime is the same as that used for Self-Assessment and other taxes (Schedule 24 FA 2007 & Schedule 55 FA 2009).

For existing ATED payers, a value should have been ascribed as at 1 April 2012. For properties purchased after that date, the value used is the purchase price. HMRC have stipulated that the values need to be reassessed every five years so 1 April 2017 will be the next applicable valuation date. If a property has been purchased during the period between valuation dates, there will still be a requirement to reassess the value at the next main revaluation date. For example, a property bought on 1 April 2015 will need to be revalued on 1 April 2017 and not five years after the date of purchase.

You may also like to refer to Cetin Suleyman’s blog, which touched on many of the issues raised above.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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employers need to question whether they would want their employees to have the inconvenience paying tax on such items as the Christmas party or perhaps their long service award.

PSA’s – Blurred Lines

Paul Webster - paul.webster@goodmanjones.com

Posted on 11th February 2015

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If you were looking for the video by Robin Thicke and found my blog, I apologise profusely!

However, if you wanted an overview of PAYE Settlement Agreements and how these compare with P11Ds in terms of tax and national insurance exposure you have come to the right place.

Although infinitely more costly to an employer (I will demonstrate in a worked example below), PAYE Settlement Agreements can be an excellent means of reporting the smaller benefits made available to your employees. The three categories of benefit found in HMRC’s non-statutory guidance SP 5/96 provides advisers with the most simplistic overview of what a PSA should cover. However, when do normal benefits in kind become minor, irregular or impracticable? The simple answer is, there is no definitive answer.

In practice, I have more commonly seen gym memberships paid by an employer on behalf of employees declared at Section M on a P11D form but within SP 5/96 this is categorised as a potentially minor benefit.

My general feeling is that employers and to a lesser extent tax advisers themselves should not become entrenched in trying to distinguish whether a benefit should be included on a P11D or a PSA. Moreover, employers need to question whether they would want their employees to have the inconvenience paying tax on such items as the Christmas party or perhaps their long service award. Not only would they be incurring tax and national insurance liabilities but they would also have to monitor PAYE tax codes issued by HMRC and ensure that the benefits appeared on their SA Tax Returns. This could result in employees heading for the exit and into the bosom of their friendly recruitment agent!

As stated in my introduction above, I wanted to provide a worked example showing the difference in tax and national insurance exposure. Let’s assume an employer has a Summer function at Ascot and a Christmas party on a riverboat. The cost of the Ascot trip is £175 per head and the Christmas party £124 per head. There are twenty staff of which twelve are higher rate and eight basic rate.

Under S. ITEPA 2003 the Christmas party is covered by the £150 per head exemption for staff functions. However, the more expensive event at £175 per head will be fully chargeable to tax and national insurance.

The cost needs to be grossed up by reference to the marginal rate of tax each group of employees are paying, which after crunching the numbers, shows that £1,750 worth of tax is payable by the Company. The Class 1B National Insurance can then be calculated on total grossed up value of the benefit for both groups of employees and this works out to be £724.50. Consequently, the total amount due under the PSA is £2,474.50 and the employees need never know that their wonderful staff function has cost the firm an arm and a leg in tax!

Now for the alternative.

If each employee were to have the Ascot trip included within a P11D, there would be tax of £1,120 payable, with an NIC liability of £483.

This means that the difference between settling the tax and NIC through PSA and having the tax paid by the employee without grossing up is £871.50. The bigger the numbers, the more noticeable the difference.

The Office of Tax Simplification report published in January this year included a proposal to extend the breadth of items that can be included within a PSA to pretty much anything that the employer wishes without prior approval from HMRC. However, as you can see from the above example, the difference in costs can be considerable and the tax burden where there are larger benefits in play even more considerable.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Expenses of Employment – Are You Missing Out?

Paul Webster - paul.webster@goodmanjones.com

Posted on 9th July 2014

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There are many employees throughout the UK who are, on occasions, required to dip into their own pockets in order to make purchases intrinsic to carrying out their job function. For some, the completion of a simple expenses claim form presented to their employer will be sufficient to see them adequately recompensed. However, for others, a reimbursement may be made for an amount less than their entitlement or there may be no reimbursement at all. Would a claim for tax relief be admissible and if so, how does one go about making that claim?

Whilst the self-employed need to have incurred expenditure wholly and exclusively for the purposes of their trade, employees have an additional condition to satisfy in that it must be also incurred ‘necessarily’ in the performance of their duties. This makes obtaining a deduction somewhat more restrictive, as for something to be necessarily incurred, it means that there is no choice in the matter. In plain speaking, if the expense is not incurred, the job does not get done. Contrast this to a self-employed individual who merely needs to incur expenditure that puts them in a position to carry out their trade.

Despite the additional condition, there are still a number of scenarios whereby an employee could be missing out on invaluable tax relief. I have listed the main categories of claim below:-

Where an employer has paid the employee for travelling in their own car at less than the HMRC approved 45 pence per mile for the first 10,000 business miles (25p thereafter).
The cost of business travel on public transport (not ordinary home to office commuting) visiting clients or other workplaces.
Expenditure on accommodation and meals whilst away on business.
Tools purchased for use in your employer’s business. An example of this is a garage mechanic who may be able to claim significant capital allowances on tools that have a useful life in excess of two years.
Subscriptions to HMRC approved bodies and unions.
Business working from home.
The cost of business calls using a home telephone.
Flat rate expenses to cover the purchase of certain HMRC approved uniforms (such as nurses) and associated cleaning costs.
Any other general expenditure incurred wholly, exclusively and necessarily in connection with the performance of employment duties, not otherwise reimbursed by an employer.

Under current legislation, a claim may be made within four years of the tax year end of the year in which the expenditure was incurred. With this in mind, an employee who has incurred personal qualifying expenditure for many years may go back as far as 2010/11, making a claim for this and all subsequent tax years.

Whilst those employees who complete a Self-Assessment Tax Return can include any claim within employment supplementary pages, the availability of the underused P87 form can come to the rescue for those who do not complete a Tax Return.

The four page form can be accessed via the HMRC website and until recently was available for completion in PDF format only. However, HMRC are currently offering a trial online version, which is incredibly quick and easy to use. I went through the form using ‘dummy’ information and managed to successfully negotiate it in a matter of minutes. For a self-confessed ‘technophobe’ and someone who has very little patience with form filling, that is a mightily impressive turnaround!

Any ensuing refund can be made directly into the bank account of the employee or if you fancy a walk down to the bank, via a cheque payment!

The only drawback is that for each year, only £2,500 worth of expenditure can be claimed outside of the Self-Assessment regime. If you consider that a claim by a higher rate taxpayer covering £2,500 for four years worth of allowable expenditure would net £4,000 plus supplement (interest paid by HMRC), it is a potentially lucrative exercise.

It is important that following any claims, you keep an eye on your PAYE tax code, as HMRC will attempt to allow relief at source moving forwards. If the code contains an allowance for, say a professional subscription that is no longer payable by the employee, an assessment may be raised to claw back the relief.

Finally, if claims for tax relief have been made in earlier years and the expenses claimed are less than £1,000, HMRC allow you to make claims for subsequent years via the telephone. If the expenses were in relation to professional subscriptions the limit is increased to £2,500.

Although HMRC have made it considerably easier to obtain tax relief in recent years, the lack of publicity for such claim mechanisms means that the general public are often left unaware of their existence. Do not lose out!

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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The Gift that Keeps on Giving [Charitable Donations]

Paul Webster - paul.webster@goodmanjones.com

Posted on 28th March 2014

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You only need to watch programmes such as Children in Need and Comic Relief to realise what a wonderfully charitable lot we are in this country. From Lands End to John O’Groats, our incredible generosity knows no bounds.

Whether it be donating to the local Church, paying your National Trust subscription, signing up for a regular direct debit to a charity close to your heart or via payroll giving, most of us have made, to some extent, charitable donations.

Understanding the best way to donate is important in order to maximise relief for the charity and/or yourself. There really is the option of ‘having your cake and eating it’ as far as ensuring that the charity receives value, whilst you receive tax relief at your marginal rate of tax.

Perhaps the most recognised way to donate is through simple cash, which would include telephone payments through a debit or credit card and cheques. For every £100 that you donate, the charity is able to reclaim a further £25 from HMRC. This assumes that you have paid sufficient tax in the year to cover the reclaim. If it subsequently transpires that you do not have sufficient tax for the reclaim, you will have to pay HMRC the £25 in order for them to honour your pledge. This is because a gift aid declaration guarantees the charity the right to the tax from HMRC.

The scenario described above can be alleviated by basic planning. There is a carry back facility available so if you anticipate having no income in 2014/15 but have made a donation on 20 April 2014, a claim may be made within your Tax Return for 2013/14 (when you paid sufficient tax), which is due to be submitted to HMRC by 31 January 2015. The ability to carry back can also be efficient if in the previous year you paid tax at the additional rate (45%) but for the current year your income will be taxed at basic rate (20%). That way, you stand to receive £31.25 tax back on the £100 in the form of additional rate relief, as opposed to nil at basic rate. Once your Return has been submitted, the ability to claim a carry back of relief is lost, as no amendments to that particular section of the form can be filed thereafter.

For those of you out there who happen to be high net worth and philanthropic, there is one particular scenario that could have a huge benefit all round. Imagine that the first of your UK rental business portfolio properties is now worth £200,000 but was bought back in the 1980’s when property could be snapped up for the current price of a sports car, particularly outside London and the South East. The gain is £160,000 after deducting the original cost, costs of sale and the Capital Gains Tax Annual Exempt Amount, meaning that the tax liability as a higher or additional rate taxpayer would be £44,800. If you are feeling particularly generous, you may decide to convey the property to your favourite charity, which will have the following benefits:-

It will be a no gain/no loss transaction meaning that the charity receives the property without any capital gains tax ever being paid. This saves £44,800 in tax that you would otherwise have paid on sale.
The value of the property (less any consideration paid by the charity) is deductible from your taxable income, which means that in the example shown above, you would receive tax relief of an incredible £90,000.
The charity has a property worth £200,000 and the transaction is exempt from SDLT.

The same opportunity exists for quoted shares. If you wanted to recoup your original investment, there is nothing to prevent the payment of consideration by the charity but that would, of course, mean that this is deducted from the deemed disposal proceeds.

Revisions to the mainstream Inheritance Tax legislation are less commonplace than many of the other taxes acts. However, one beneficial change that was recently made drops the rate of IHT to 36% payable on a deceased person’s free-estate where 10% of that estate is left to charity. The 10% calculation is made after reducing the amount exposed to tax through relief, exemptions and the nil rate band.

At one stage it appeared that the current government were going to limit the amount of tax relief that could be received through charitable giving to £50,000. Whilst there have been limits imposed for certain loss relief and pension contributions, common sense prevailed and charitable donations were not affected by new legislation.

Particularly in times of austerity, charities are keener than ever to receive gifts from the Great British public so if you do have the odd spare house sitting around collecting dust and you are feeling particularly generous, there may just be a way that you can help whilst mitigating the financial loss through tax relief.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Furnished Residential Lettings v Furnished Holiday Lets

Paul Webster - paul.webster@goodmanjones.com

Posted on 6th March 2014

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Is there really that much of a difference between the two? Both are furnished, both are lettings but in the weird and wonderful world of taxation, they are poles apart.

Whilst cost is an obvious consideration when choosing a property to purchase, one cannot overlook the tax advantages and potential rental yield attributable to a furnished holiday let.

Imagine that the beautiful character cottage you have been holidaying at in Cornwall for many years comes onto the market for what you consider to be an affordable asking price. You realise that due to work commitments, holidays at the property will be at a premium but the opportunity to purchase it with a view to moving there on retirement is too much to resist. What are your options if you do take the plunge?

Firstly, you could let the property out as a normal furnished or unfurnished residential let, given that it is located in small town with all the basic amenities that a tenant would require on the doorstep. Of course, this would guarantee a regular income but not necessarily recoup your outlay at a particularly expeditious rate.

A more appealing option may be to enter the furnished holiday let market, which given that you have been paying up to £1,500 for a week in the cottage, could be a particularly lucrative option especially in the summer season.

The tax advantages of owning and letting a furnished holiday let are numerous, in particular the myriad of Capital Gains tax reliefs. Firstly, you need to be aware of the basic qualifying rules whereby the property must be let for 105 days and be available for 210 days in any given tax year. HMRC also stipulate that the property cannot be in ‘longer term occupation’ for more than 155 days during a tax year. The definition of ‘longer term occupation is over 31 days consecutively. When I plug the numbers into my calculator (I’m a Tax Adviser not an Accountant!), this means that there are potentially 155 days for you or the family to spend at the property. There are even periods of grace available where the conditions regarding days let are not met in a particular tax year.

As if that is not good enough, providing that the property has qualified as a furnished holiday let during the final twelve months of ownership, the chargeable gain will be eligible for a 10% tax rate by virtue of qualification for Entrepreneur’s Relief.

If you decide that you want to dispose of the existing property and acquire a larger, more luxurious one at any time, another Capital Gains tax relief often overlooked is Rollover Relief. If you make a considerable gain on disposal of the initial property, that gain can be rolled into the purchase of the new property, meaning that in many situations no tax is paid until the new property is ultimately sold. As death is not a chargeable occasion for rolled over gains, there will be no tax to pay whatsoever if the second property is retained for life with the eventual recipient inheriting it at probate value.

Other tax advantages are capital gains tax gift relief, the ability to count the profit as net relevant earnings for pension contribution purposes and capital allowances on furnishings and appliances.

Consideration should be given to the cost of replacing household furnishings and employing an agent to manage the property but on balance furnished holiday lettings do continue to offer some great tax breaks.

An investment property that could qualify as a long term residential let as well as a furnished holiday let would be tax utopia but to find an area to appeal equally to prospective residential tenants as well as holidaymakers is difficult.

Whether you are deliberating over buying that dream cottage in the UK or villa in the sun (the furnished holiday let rules also apply to properties located in the EEA), to help you have peace of mind where potential tax exposure is concerned, you are welcome to contact one of our experienced tax team for some advice.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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