Naturally, we’re told often enough that Squares and Circulars are something of a contradiction in terms.
Likewise, you may feel there’s something not quite right about discussing furnished holiday lettings accommodation at a time of year when those lazy hazy crazy days of summer (summer?) are a fast fading memory. However, there’s always next year especially when the Taxman is involved and this issue of the Square Circular focuses on what perhaps are under-used tax concessions for U.K. furnished holiday lettings.
But before (and after) you start thinking about the décor of that holiday home there are a few other matters we’re bringing to your attention.
COMPANY CARS – AGAIN!
Of course you know that the method of calculating the taxable benefit of having company cars is set to change from 6 April 2002 in a way that might be disadvantageous to many company car users. Our Square Circular in November last year gave you early warning of this.
Thoughts are increasingly turning to the possibility of buying the company car out of the company but you still need to know the most tax efficient way of pursuing that particular option.
If you want to discuss the pros and cons of taking your car out of the company and the best way of doing it contact either Simon Topperman or your usual contact partner at our office on 0161 832 4841.
COMPUTERS – THIS TIME
We’re now about halfway through the period from 1 April 2000 to 31 March 2003. So what?
Well, for that period a small business can claim 100% capital allowances on information and communications technology expenditure. It covers computers, computer peripherals, cabling, WAP phones etc.
To qualify, your business must be “small” and we can soon tell you whether or not you qualify. If you do and you need to upgrade your ICT equipment over the next couple of years, don’t leave it too late.
A TAX HOLIDAY?
The special tax rules regarding furnished holiday lets date back to the mid 1980’s when the then Government wanted to encourage the U.K. tourist industry. They chose to do this by classifying the letting of furnished holiday accommodation in the U.K. as a trading activity.
The significance of this will particularly hit home with those of you who let other types of property. How often have you asked us questions about income tax and capital gains tax concessions only to be told that the concessions do not apply in your case because property rental in itself is NOT A TRADE?
If you’re thinking of investing in that special little property on the North Wales coast, in the Lake District, or on the Speyside Whisky Trail (the scenery’s good there, too) how does the Taxman help you if you rent it out?
In brief if the letting is on a commercial basis it is treated as a trade. Losses arising, for example as a result of mortgage interest, advertising costs, repairs etc. can be set off against your other income for that year – or indeed for three years before if the losses arise in the early years of the letting trade. Hold over relief, roll over relief and business asset taper relief apply for capital gains tax purposes.
If you spend time in the accommodation there will be some restriction in the allowable expenditure relating to the property but it does not mean that letting the property for other periods of the year is not still treated as a trade. It could be ideal for short breaks or a short holiday.
As you might expect, you have to clear some hurdles for the letting of the property to qualify as a trade. The key is that the letting must be commercial and there have to be minimum periods for which the property is actually let and is available for letting to the general public. There isn’t the space to go into all the details in this short note.
Whether it is a wise investment to buy a second property with the costs and responsibilities involved is also outside the scope of this article. We do not presume to comment on the vagaries of the property market in seaside or countryside locations. What has surprised us in the past is the variety of people investing in furnished holiday lettings. It is by no means confined to captains of industry. Quite often people who have to live close to the big city for their work or people who do not own their own homes but have to live in “representative accommodation” dream of the retirement cottage in the countryside or the bungalow by the sea. The tax breaks afforded by the furnished holiday lettings rules can help towards achieving those long term retirement objectives.
If you want further information on the taxation of furnished holiday lettings in the U.K. contact either Simon Topperman or your usual contact partner at our office on 0161 832 4841.
Are you selling your business or the shares in your trading company in the near future?
How near is near? Before 6 April 2002 or after? A Treasury proposal last June to reduce the qualifying holding period for business asset taper relief from 4 years to 2 years may be an incentive in some cases to delay the disposal until after 6 April 2002.
More about that in the future but in the meantime please contact us if you would like further advice with regard to Capital Gains Tax saving opportunities.