Letting a second home: tax reliefs and liabilities

Around one in 20 residential properties in Devon are classed by the Government as second homes, with the majority of those let out to holidaymakers.

Some Devonians recognise the benefits second homes have on the local economy, while others want to prevent them driving up house prices for genuine house hunters.

Legislation does little to deter wealthy individuals from snapping up second homes, with certain reliefs available for what HMRC calls furnished holiday lets.

Many of these tax breaks are unavailable for residential landlords, which makes letting out property that is not your main residence an attractive proposition.

Furnished holiday lets: qualifying conditions

To qualify for a range of reliefs, which we will go into later, the furnished holiday home must be available for 210 days a year and let for at least 105 days.

As the legislation was introduced to boost domestic tourism, the property should not be let out to family, friends, local residents or businesses.

In the first year of letting the property out for commercial purposes, it should not be let for more than 31 days per tourist.

The property must be fully furnished with the intent for it to be let out to paying holidaymakers in the UK, or other countries in the European Economic Area.

Intent to make a profit is what HMRC considers to be the keyword here, and the rise of Airbnb makes it easier to document that intent to the Revenue.

Furnished holiday lets: tax reliefs and allowances

Capital allowances can be claimed to cover the costs of furnishing the property, while any profits are treated as earnings for pension contributions.

Any commercial expenses incurred, such as heating or electricity use by tourists, paying a cleaner, or making improvements to the garden, can be reclaimed.

Individuals, partnerships and unincorporated companies can claim rollover relief, holdover relief, or entrepreneurs’ relief on disposal to reduce capital gains tax.

No council tax is owed if the property meets the qualifying conditions for being a furnished holiday let, while mortgage interest can be deducted from profits.

Furnished holiday lets: tax liabilities

Owners of second homes do not pay council tax, but business rates apply if the property is available for short-term lets on more than 140 days a year.

What they pay in business rates is determined by the local council, with Mid Devon District Council responsible for furnished holiday lets in Crediton.

It is also worth having an eye on the VAT-registration threshold as the business will need to register for VAT on turnover of more than £85,000 a year.

For a single holiday home, it’s unlikely VAT would come into play as the average gross income of a holiday home let in the UK is estimated to be around £18,000.

But for individuals or businesses owning more than one, the VAT-registration threshold is an important consideration.

To report and pay income tax on earnings of more than £2,500 a year from letting the furnished property, a self-assessment tax return must be completed.

Contact us

There is more to furnished holiday lets legislation than this brief guide outlines, and we are on hand to help you with every step.

For more information on our personal tax planning service, email us on info@stapletonsaccountants.co.uk or call us on 01363 773191.