Skewed policy favouring holiday homes

by Property 118

0:01 AM, 31st January 2020
About 8 months ago

Skewed policy favouring holiday homes

Make Text Bigger
Skewed policy favouring holiday homes

Growth in the number of short-term lets across the country is a symptom of skewed policy that favours holiday homes over long-term properties to rent.

A new report published today by ARLA Propertymark suggests that nearly half a million properties could be left unavailable for longer-term rent as more landlords exit the market in favour of short-term lettings.

The Residential Landlords Association argues that this is in large part because the tax system favours holiday homes over the provision of long-term homes for private rent. Whilst the Government has almost completed the process of restricting mortgage interest relief for landlords to the basic rate of income tax, this measure does not apply to furnished holiday lets.

David Smith, Policy Director for the Residential Landlords Association, said:

“Today’s report highlights how inconsistent the Government’s approach to the rental market now is. On the one hand the Ministry of Housing wants to encourage more landlords to offer properties to tenants on a long-term basis. On the other hand the Treasury has a tax system which makes renting out holiday homes more appealing at a time when demand for homes to rent is outstripping supply.

“What we need is a tax system that supports and encourages the majority of hard working landlords doing a good job to provide the long-term, quality rental accommodation tenants desperately need. We call on the Chancellor to do this in his forthcoming Budget.”



Comments

Michael Barnes

13:04 PM, 31st January 2020
About 8 months ago

Yep!

Screw landlords: screw those who need somewhere to live.

Brian Morais

13:21 PM, 31st January 2020
About 8 months ago

Can someone throw some light as to what constitute short lets or holiday lets ( not sure they mean the same with HMRC ) ?
Secondly if you have one or two properties on short lets what happens if the gross income exceeds GBP 85,000 ? Ae we liable to be registered for VAT ? The Clients are all foreigners who are VAT excempt eg a tax agent does not charge VAT for his client who is a NRL right so what happens in this case ?

silversurfer2017

13:36 PM, 31st January 2020
About 8 months ago

The tax system will not change. A holiday let is definitely a business and must be run as a business, for example must be let for minimum of 105 nights per year at commercial rates not 'friends rates'. Loans are more expensive. You must fully furnish the property including towels, bedding and provide extra safety equipment. You have to organise cleaning and laundry service.
You rarely become an accidental holiday let owners whereas many people become accidental landlords. Properties are left in wills when someone dies. The beneficiaries often can't decide whether to keep it or sell. Often they end up renting it at least for a short time. There has never been any intention on the part of the owners to start a business,

Michael Barnes

14:27 PM, 31st January 2020
About 8 months ago

Reply to the comment left by at 31/01/2020 - 13:36
A holiday let is definitely a business

So is residential letting.

I think you mean"A holiday let is definitely a trade"

silversurfer2017

19:04 PM, 31st January 2020
About 8 months ago

Reply to the comment left by Michael Barnes at 31/01/2020 - 14:27For a lot of property owners they do not regard their property as a business or a trade but just as an alternative or addition to savings in a pension plan. The fact that some landlords buy multiple properties and try and make a business or a trade out of it is up to them. There is no point bleating about the situation. They know it has never been taxed as a trade under income tax rules. It has never been counted as a business or a trade for income tax purposes and never will be. You can't make extra pension payment based on this 'income' but you can of course on the income from holiday lets. The only exception at the moment for residential lettings is to form companies, or invest in companies, which are specifically formed to rent out properties. You are then of course moving the goalposts as their taxation will of course come under corporation tax rules and not under personal income tax rules.

Michael Barnes

18:18 PM, 9th February 2020
About 7 months ago

Reply to the comment left by at 31/01/2020 - 19:04
Residential letting IS considered a business by the tax man.
It is not considered a trade, and hence the differing tax treatment.

Many people treat "business" and "trade" as meaning the same thing, but the tax man does not.

silversurfer2017

10:10 AM, 10th February 2020
About 7 months ago

Reply to the comment left by Michael Barnes at 09/02/2020 - 18:18If residential letting is considered as a business then presumably the profit from this business would count as earnings and be subject to income tax if running this business as a sole trader. The same as someone running a corner shop or a factory as a business as a sole trader would pay income tax. One difference is of course, which you are well aware of, is the person running the corner shop can get tax relief on his personal pension contributions up to 100% of his income. This does not apply to residential lettings and if the property owner had no earned income would be limited to an annual contribution of £3,600 gross, £2,880 net.
The other major difference of course is that loan interest on residential letting will very soon be limited to 20%, whereas a true business will be allowed income tax relief at the business owners highest rate of income tax. The reason the government has be able to do this so easily of course, without being challenged in any courts, is that residential letting, carried out by an individual, is NOT A BUSINESS.
If the government wanted to go a step further and remove entirely the tax relief on mortgage interest there is nothing individual tax payers could do about it!
They could protest of course either directly or through RLA etc. but could not compel the government to change its mind. (as per my previous post this would not affect companies which pay corporation tax rather than income tax)

Mark Alexander

10:38 AM, 10th February 2020
About 7 months ago

Reply to the comment left by at 10/02/2020 - 10:10
To correct some of your misunderstandings you might wish to read HMRC manual PIM1020, link below.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1020

silversurfer2017

15:19 PM, 10th February 2020
About 7 months ago

Reply to the comment left by Mark Alexander at 10/02/2020 - 10:38
HMRC does say 'Profits from UK land or property are treated, for tax purposes, as arising from a business.' The Property Income Manual does not deal specifically with residential letting, by an individual, let on an AST. As you know, modified rules apply to this type of letting compared with say renting out a shop unit on a commercial lease and it was just residential letting on on AST that I was referring to.
Profits from renting on the latter basis are, in my opinion, taxed on a basis that is much closer to the way investment income is taxed.
Investment income is taxed at normal income tax rates and like residential letting does not count as earnings so in non-pensionable.
The tax relief on mortgage interest is not the same as the full loan interest tax relief as would apply to most other businesses.
The government granting mortgage interest relief on BTL mortgages is only a concession and could be phased out/withdrawn at any time, as was personal mortgage interest relief on prime residences many years ago. Full tax relief on true business loans will not be withdrawn.
CGT is taxed at a higher rates and there is no rollover relief as applies to other businesses (even to holiday lets).
So bearing in mind these disadvantages do you still think residential letting, at least from a personal taxation viewpoint, can still be regarded as a business?
Purely from an investment viewpoint, I think that share based ISAs could give many people complete freedom from income tax and CGT with no paperwork. Nowadays a much more attractive proposition than property investment.
Our own ISA's provide us with £40,000 p.a. of rising tax free income.

Mark Alexander

16:52 PM, 10th February 2020
About 7 months ago

Reply to the comment left by at 10/02/2020 - 15:19
With the greatest of respect, opinions are irrelevant unless they can be backed up with legislation or links to HMRC manuals or case law.

In regards to case law, in 2013 HMRC tested whether a landlord letting on AST’s can be a business. HMRC held your opinion and said that wasn’t possible. They were wrong! They lost their case, look up HMRC vs Ramsay”. They have not tested another case since losing against Mrs Ramsay in the Upper Tier Tax Tribunal. Mrs Ramsay owned one property which was split into 10 flats, of which only five were let at the time of the case.

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

My goals for Property118 in 2021

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More