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Taxation Of Serviced Accommodation

The benefits and disadvantages ...

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POSTED BY HELEN BEAUMONT ON 06/01/2021 @ 8:00AM

Many buy-to-let landlords are now looking to acquire or convert their traditional buy-to-let properties into serviced accommodation. Depending on the location, the risk may be higher, but this is compensated by the increase in return ...

Serviced accommodation is becoming more attractive for buy-to-let landlords!

Serviced accommodation is becoming more attractive for buy-to-let landlords!

copyright: jamesteohart / 123rf stock photo

Traditionally, when we refer to the term Furnished Holiday Lettings (FHL), your mind automatically jumps to a property in a seaside location. However, there is nothing in the legislation to say that it must be by the sea, just that it must be in the EEA. The property must be furnished and let on a commercial basis with a view to profit.

In addition, during a 12-month period (usually a tax year), the property needs to be:

  • Available for let for 210 days

  • Be let as a holiday let for 105 days

  • Longer-term occupation is defined as a letting of more than 31 days, but not longer than 155 days

The property can be let for periods longer than 31 days at one time, but none of the days will count towards the letting condition, unless there are exceptional circumstances.

You can see how a serviced accommodation, let on a short-term basis can satisfy these rules and, if they do, the tax reliefs are favourable.

So, what are the benefits?

  • Profits from an FHL are included within relevant earnings for pension purposes

  • Capital Gains Tax reliefs are generally only available to trading businesses, but can be claimed if an FHL business is sold. These include:

    • Entrepreneurs' Relief

    • Rollover Relief

    • Holdover relief

    • Where FHL's are owned jointly by a husband and wife profits and losses can be allocated in whatever share is agreed as a Profit Split.

  • Capital allowances can be claimed in respect of capital expenditure incurred on an FHL

What are the disadvantages?

  • If your turnover exceeds the VAT registration threshold, you will need to charge VAT on the rents. Not only is this an administrative issue, it may make the property uncompetitive

  • A loss incurred on an FHL business in any tax year is not available for set off against any other income or gains

  • Unlike trading businesses, most FHL businesses will not qualify for Business Property Relief (BPR). So, the full value of the FHL, less any mortgage, will be within your estate for Inheritance Tax



Until next time ...



HELEN BEAUMONT

 
 



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About Helen Beaumont ...

 

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.