The letting of one
of our holiday homes or lodges could potentially bring considerable
tax advantages to its owners. These advantages are not available
for brick built holiday homes only our 'mobile home' style accommodations.
Below is a detailed description
of all the tax advantages (including capital gains tax) but the
best thing to do is ask your accountant about “FHL's"
(Furnished Holiday Lettings). You can also call our accountants,
Thompson Jenner, on 01395 279521 and they will talk things through
with you. Ask for Paul Carnell.
Inheritance Tax Relief:
If a holiday home is purely a holiday home used
exclusively by its owners, the full market value of the property
will be incorporated into the owner’s estate on their death.
This can mean that their estate can exceed the nil rate Inheritance
Tax threshold (IHT) of £285,000 (2006/07) and tax at 40% will
be chargeable.
A potential method of reducing this liability is
a relief called “business property relief,” which provides
a 100% IHT exemption for owners of business assets. This relief
is primarily used by the owner’s of family run businesses
who on death pass their business on to their siblings. The relief
ensures that the simple inheritance of a trade does not land the
beneficiary a 40% tax bill that could effectively ruin the business
in question.
To qualify for the relief the holiday home has to
be a “Furnished Holiday Letting,” and has to be let
with the following criteria:
1. The property must be available for commercial
letting to the public as holiday accommodation for at least 140
days per year; and
2. It must be let for 70 days; and
3. For a period of at least 7 months (not necessarily continuous
but including any months in which holiday lettings take place) it
must not normally be in the same occupation for a continuous period
exceeding 31 days.
4. The property must be furnished
If the property is eligible the business only has
to be owned and used within the business for two years prior to
death, with no gifts or trusts being initiated. This will then mean
that 100% IHT exemption would be claimable on the value of the holiday
home.
The additional benefit of letting the property will
mean that the owner will receive a regular income from the rental,
and also benefit from the potential capital growth of the property
in an effective IHT shelter.
If the rules are not correctly applied or if the
owner extensively uses the property, the relief can be put at risk.
This does not mean that you cannot use the property yourself, but
consideration will need to be taken as to timings of your use, and
that any additional use by family and friends will need to booked
as if they were normal tenants.
Hazelwood Park offers a full management service
for the letting of privately owned holiday homes and this means
that you can remove your involvement in the day to day management
of your property.
Relief’s available for Capital Gains Tax,
Capital Allowances & Income Tax for Furnished Holiday Lets
Additional tax reliefs available for these holiday
homes include
1. beneficial treatment for Capital Gains Tax purposes,
and
2. the ability to claim capital allowances on the original acquisition
of the caravan itself and
3. certain capital improvements to the mobile home; and
4. the ability to offset any “FHL” losses against other
general income.
These capital allowances and normal business expenses
will be eligible for offset against rental income.
Disclaimer
The above is a brief outline of current legislation (Jan 2007) any
commercial decisions should be made after advice from a tax accountant.
Owners will be liable to income tax on rental income and may be
required to complete self assessment tax returns.
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