11:28 AM, 3rd November 2022, About 3 years ago 16
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A government adviser is urging the scrapping of tax perks for holiday lets which could see tax bills increasing by thousands of pounds every year for landlords.
The Office for Tax Simplification (OTS) is recommending that the government stops the owners of a furnished holiday let from offsetting mortgage interest payments against their income tax bills.
The ending of the so-called ‘furnished holiday let system’ would then bring to an end one of the last tax-efficient forms for small-scale property investment.
It would also force the owners of holiday lets to pay tax on their earnings in the same way that a traditional BTL landlord does.
Buy to let landlords had, until 2017, the same perk but this was phased out and then replaced with the 20% tax credit in 2020.
However, holiday let landlords kept the relief.
One accountancy firm has calculated that a landlord in Cornwall renting out a four-bedroom house as a holiday let will be forking out an extra £2,000 every year in tax.
Accountancy firm RSM says that a landlord with a holiday let who earns £24,000 every year, will have an income tax bill of £5,775 – assuming that the property is jointly owned by a couple who are also higher rate taxpayers
If the government decides to follow the OTS advice and scraps the furnished holiday let system, the owners of the holiday let would see their tax bill rising to £7,687.
Chris Etherington, of RSM, told the Daily Telegraph: “If they get rid of that benefit, the ultimate result is that people will sell up because their properties will become commercially unviable.”
In a report, the OTS says there are around 127,000 furnished holiday lets owned by individuals with the income being declared on their HMRC personal tax returns.
The organisation says that short-term rentals enjoy a more favourable tax treatment than the main property income tax rules with more tax relief available for costs, including interest.
There’s also, potentially, a reduced capital gains tax bill when the property is sold.
Now, the OTS recommends that the government considers whether there is a benefit in having a separate tax regime for furnished holiday lets and if the rules are abolished there will be a need to determine whether some property letting activities that are subject to income tax should be treated as trading activities.
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Luke P
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Member Since March 2015 - Comments: 1968 - Articles: 1
12:47 PM, 3rd November 2022, About 3 years ago
Sung to a jolly tune: “You’re gonna wreck the market entirely….”
NewYorkie
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Member Since October 2013 - Comments: 1607 - Articles: 3
13:34 PM, 3rd November 2022, About 3 years ago
I am exiting BTL due to increased taxation, regulation, and feckless tenants, and have always wondered why holiday-let owners have enjoyed preferential tax treatment, especially since the introduction of S24 for BTL.
It is fair to say holiday-let owners are typically in a higher income bracket, offer a discretionary service in return for higher ‘rental’ income over a shorter period, don’t have to worry about evictions, and then have use of their desirable properties when not occupied. Also, they have seen a huge increase in income and profits as a result of ‘staycations’. They are, therefore, more easily able to absorb tax increases. Meanwhile, BTL is an essential service. People need somewhere to live. Yet, BTL has been hit from all angles, with no end in sight, forcing landlords out of the sector, and forcing up rents.
I have been saying for years that holiday-lets are low-hanging fruit for the treasury, and would be a populist move. I did buy and extend a house 2.5 years ago, with the plan to holiday-let, but have now given up on that plan. I had my house valued only last week, and stand to make up to £200k profit, but what would I do with £800k when nowhere seems safe from the grasping hands of the treasury, and market fluctuations?
Luke P
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Member Since March 2015 - Comments: 1968 - Articles: 1
14:05 PM, 3rd November 2022, About 3 years ago
Reply to the comment left by NewYorkie at 03/11/2022 – 13:34Move. Abroad. That’s what you should do.
Beaver
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Member Since May 2018 - Comments: 1963
14:22 PM, 3rd November 2022, About 3 years ago
I’m sorry but I may be missing something here.
Stopping people offsetting their finance costs against their income in the BTL residential property area does penalise the smaller middle-income earner, but don’t all the others just incorporate and continue to deduct their finance costs? Isn’t that what’s happening in the rest of the BTL market?
And who is this genius of a ‘government adviser’ who gave that advice?
NewYorkie
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Member Since October 2013 - Comments: 1607 - Articles: 3
14:29 PM, 3rd November 2022, About 3 years ago
Reply to the comment left by Luke P at 03/11/2022 – 14:05
One of my closest friends now has Portuguese residency. 10% tax on all income.
NewYorkie
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Member Since October 2013 - Comments: 1607 - Articles: 3
14:36 PM, 3rd November 2022, About 3 years ago
Reply to the comment left by Beaver at 03/11/2022 – 14:22
Unless you already have a Ltd company, it’s not that easy nor cost-effective to move from personal to company ownership.
The ‘advisor’ is right. Tax holiday-lets the same as BTL, and the only complaints will be from the relatively few better-off owners. If they can get away with it for BTL, that would be a doddle. I don’t know how much it would raise, though. But… every little helps, and it would appeal to the politics of envy.
Beaver
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Member Since May 2018 - Comments: 1963
14:40 PM, 3rd November 2022, About 3 years ago
There’s a separate thread on this forum that says the *average* number of properties held in a property company is now 3.3. If that’s the average that means there are a lot of companies with just 1 or 2 properties in them. The most likely reason for that is that the owners of the properties had income from elsewhere that took them out of the 20% tax band.
It doesn’t cost much to run a limited company. Your accountant can do it for a few hundred quid a year.
NewYorkie
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Member Since October 2013 - Comments: 1607 - Articles: 3
14:44 PM, 3rd November 2022, About 3 years ago
Reply to the comment left by Beaver at 03/11/2022 – 14:40
I’ve run a Ltd company for 14 years (non-property)! It’s nothing to do with accountant’s fees!
Rerktyne
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Member Since February 2022 - Comments: 88
15:35 PM, 3rd November 2022, About 3 years ago
Yet another idiotic idea from a pen pusher with no experience of the real world. I have holiday flats and I must service them. I also have gaps between bookings. What’s the difference between me and Mr Centre Parcs? Or a B&B (except for breakfast)?
It’s a business and I pay business rates.
If the government wants to cause higher prices like it’s causing higher rents then all you get is more economic problems.
This is purely political: holidaylettings has become a sanctuary for beleaguered landlords. So attacking them makes sense to a stupid politician who thinks that the unpropertied will magically come up with £100,000 deposits and increase the ownership of homes.
Utter crap!
Beaver
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Member Since May 2018 - Comments: 1963
16:16 PM, 3rd November 2022, About 3 years ago
Reply to the comment left by NewYorkie at 03/11/2022 – 14:44
I’ve also run a company for more than 14 years….also nothing to do with accountants’ fees and it doesn’t have property in it.
But right now if I had a high salary with no other way to mitigate my tax losses other than pay into pensions and I also had 1-2 morgaged properties not held in a partnership or LLP then I would probably put them into an incorporated business. And if the average number of residential properties in a Ltd company is presently 3.3 it looks as though that’s what a lot of the market has done.