How You Could Save Tax With A Furnished Holiday Home.
Owning a second home is an attraction for us all as an investment and also a steady income stream.
Firstly, let us gain an understanding of how a Furnished Holiday Home differs to a normal buy to let property investment:
Furnished Holiday Home Explained
Comparing the Tax Benefits
The ability to write down depreciation of the assets against income tax
The ability to use Business Property Relief (BPR) i.e. pass on the asset free of inheritance tax.
Income Tax (CGT)
Profits on rents after running expenses are taxable
Capital Gains Tax
Payable on both types of property (after allowances).
Buy to let: Tenant will pay
Furnished Holiday Let: off settable as an expense apart from periods of longer term let
What to watch out for
In a recent test case Pawson (deceased) v HMRC , 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.
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.
You can stay there yourself for long periods as well as letting to family and friends (at market rate though).
Worth considering as an alternative to buy to let.
Definitely worth considering for efficient inheritance tax planning.