Gaining a rental income by letting out your property as a holiday home is a great way to add another revenue string to your bow, or even as your sole source of income. The important thing is that you are aware of all the rules and regulations before you decide to open your doors…
Here at Ellacott Morris we can support you with all your property lettings accounts and tax requirements, but there are some key pieces of information that you’ll want to be aware of before you step into the world of property rentals.
Firstly, if you plan to make any changes to the property in preparation to turn into a viable holiday let, then you must be able to prove these costs are for the purpose of the venture. This piece of evidence can be as simple as an email to us as your accountants confirming when work will begin. You also need to be able to prove that you are no longer living at the property. Be sure to keep detailed receipts and invoices for all the expenses incurred.
Ongoing, any repairs or maintenance carried out on the property can be claimed as an expense, but structural work cannot. You can claim for the cost of a replacement item, such as a cooker, heater or shower, but not for additional items.
It’s also important to remember that any assets in the property will be beneficial should you choose to sell, by reducing the capital gains tax (CGT) exposure.
For your property to qualify as a Furnished Holiday Letting (FHL) property it must be available to let for at least 210 days out of the year, every year. In its first year, it must be let for at least 70 days - any less and it won’t qualify for subsequent years. After its first year, the property must be let for a minimum of 105 days per year, excluding long-term lets (more than 31 consecutive days).
For your property to qualify as an FHL property you must record the dates which it was let. Your first year as an FHL will begin from the date of the first let, where it must then be occupied by holiday tenants for at least 70 days from that date in the following 365 days. After your first year, your lettings requirements will fall in line with the tax year.
If you fail to reach the threshold for the number of days the property is let each year then HMRC provides two options…
Option 1 – Averaging Election
This option is only applicable if you own more than one holiday rental. It is used by applying the average rate of occupancy for all your FHLs to reach the minimum number for the property that fell short.
Option 2 – Period of Grace Election
If, despite your best efforts your property didn’t reach the minimum requirements for an FHL you may be able to apply to HMRC for a ‘period of grace election’. To do this you must be able to prove that you had genuine intentions to let the property in that year. This could include evidence of your marketing efforts or comparisons to previous years rental patterns should they have been interrupted by something out of your control such as adverse weather.
This option can be used for up to four years, following two consecutive period of grace elections. If you still fail to meet the minimum number of days let, your property will no longer be classified as an FHL.
If you’re feeling a bit overwhelmed by the FHLs, CGTs and HMRCs above, then simply contact the experts and let us reduce your stress AND increase your income where possible. Sit back and relax, just as you want your holiday tenants to do, and let Ellacott Morris manage your finances. Get in touch today!
