Save Tax With A Furnished Holiday Home

Holiday Home

Owning a second Holiday Home is an attraction for us all as an investment but also for stable income stream.

Firstly, let us gain an understanding of how a Furnished Seminarhaus Hessen Holiday Home differs to a normal buy to let property investment:

  • It can be a static mobile home i.e. a “caravan”
  • A purpose built holiday home (we are seeing many more of these sites being built – no tax for tax mitigation)
  • A normal residential property can be bought and then run as a holiday home. Must be fully furnished
  • Must let property for 105 Days
  • Must be available for let for 210 Days
  • Cannot let for longer term lets of more than 155 days during the year
  • Must be in the European Economic Area

Comparing the Tax Benefits

Capital Allowance

The ability to write down depreciation of the assets against income tax

  • Buy to Let: No, only running expenses
  • Furnished Holiday Let: Yes. This is attractive as an additional expense when capital spend/make improvement you make plus normal running expenses

Inheritance Tax

The ability to use Business Property Relief (BPR) i.e. pass on the asset free of inheritance tax.

  • Buy to Let: Inheritance Tax may be payable as it is not a business
  • Furnished Holiday Let: It is a business asset, can claim 100% BPR i.e. No inheritance tax payable

Income Tax (CGT)

Profits on rents after running expenses are taxable

  • Buy to Let: Yes, payable
  • Furnished Holiday Let: Yes, payable

Capital Gains Tax

Payable on both types of property (after allowances).

  • Buy to let: Yes, payable at 18% (basic rate taxpayers) and 28% (higher rate tax payers)
  • Furnished Holiday Let: May benefit from Entrepreneurs’ Relief when selling your holiday let as it is as a business asset. CGT on business assets is 10% for the first £1m of gains rather than 18%-28%.
  • Roll-over Relief: May be able sell your furnished holiday home and roll over capital gains into another “business” furnished holiday let and not pay capital gains tax

Council Tax

Buy to let: Tenant will pay

Furnished Holiday Let: off settable as an Ferienhaus mit Sauna und Kamin expense apart from periods of longer term let

What to watch out for

In a recent test case Pawson (deceased) v HMRC [2012], HMRC attempted to block 100% business property relief on the property claiming that no service was being provided by Pawson. In short, it was not being run as a service business holiday home. A Tribunal overruled HMRC sighting the regular turnover of guests, on-going services for cleaning, bedclothes, television, telephone etc. in the cottage made it a holiday business allowing BPR and not an investment subject to IHT.

Our view

A great opportunity to save tax and own a holiday property. Make sure it is commercial service for paying guests, brochure, on holiday let websites, local guide in the property, provide towels, water, etc.

Is It Worth Renting a Holiday Home?

When booking a holiday, many people will naturally book their accommodation in a hotel, or book a package holiday where their room is included. The alternative is to book a holiday home or apartment, either privately with the owner, through a rental company or resort, or as part of a package deal. This can often work out cheaper both in terms of the rental cost, and in terms of the amount of money you will spend during your trip.

Few ways of booking your apartment

There are a few ways of booking your apartment and each has its advantages and drawbacks. Firstly, it is possible to book an apartment, villa or holiday home as part of a package deal. As a family, this is often the best, and most cost-effective, way to book. You can book through a well-known, trusted company and a certain standard of accommodation will be guaranteed. For standard holiday destinations this is often the best thing to do. It takes the hassle out of booking and flights often work out cheaper when booked this way, as can the accommodation. The downside comes if you are looking to go somewhere a little more unusual, or when you would prefer not to be on a resort complex. Package holidays are designed to appeal to the masses. If you would prefer to avoid said masses, this method isn’t for you.

The second way of booking your apartment is to go directly through the owner. Unless you know and trust the apartment owner, this can be Ferienhaus mit Sauna und Kamin somewhat risky. You don’t know whether the apartment is kept clean and tidy or whether all amenities are in working order. That said, if you know the owner or you are willing to take a risk, booking your holiday home this way can be a great way to save money. People who use their own holiday homes regularly will usually look after them well; this means that their home is likely to be maintained to an excellent standard. They will often see any rental money they get from it as a bit of a bonus, so they are unlikely to overcharge you for using it.

Book your accommodation

The other way that you could book your accommodation is to do it through the resort where the holiday home is located. If on a resort, apartments are usually maintained by a management company. This means that a good standard of cleanliness can be expected. Both the apartment and the resort will be kept to a very particular standard in order to satisfy both the owners and any rental users. Renting through a resort is slightly more expensive than renting directly from the owner, but can still work out significantly cheaper than staying in a hotel. Additionally, you will have the option of self-catering. This can save you a fortune in comparison to eating in a restaurant every day.

Despite the risks, I would advise thoroughly researching your options in the location that you want to visit and putting some serious thought into renting a holiday home or apartment rather than staying in a hotel.