Monday, 29 January 2018 12:40

Stop section 24 eating your profits!

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Stop section 24 eating your profits!

 

I am sure that most of you, like myself, have spent some time recently completing your self-assessment. While we are happy to pay our dues, few people would want the taxman to benefit by more than necessary. This is where shorts lets get interesting.

I am sure that most of you, like myself, have spent some time recently completing your self-assessment. While we are happy to pay our dues, few people would want the taxman to benefit by more than necessary.

How does your furniture spend stack up against the 10% wear and tear allowance? I used to spend about 2% of turnover on furnishings, I now approach it with an all or nothing attitude. Some properties now go out unfurnished, others fully furnished but no more of the 'just enough' to gain the allowance.

When you set up a short let property one of the most shocking expenses is that of furnishing. Many landlords have scrimped on this over time (the 10% wear and tear allowance encouraged scrimping) so, if you are considering holiday lets,  now is the time (on a like for like basis of course) to update your existing furniture as an ongoing expense.

The rule for changing your property to a short let is based on the furnished Holiday Let definition (look up https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2015) but in the meantime preparation can take place and you can benefit from tax relief on updating existing furnishings in your existing let property

The other upcoming shocker in self assessment is section 24, IF YOU ARE NOT AWARE OF THIS, GET AWARE! as of April 2017 mortgage loan interest is no longer a deduction. Instead it is added to your income and taxed accordingly (even though you have paid it out). PDPLA have covered this info at length but it doesn’t hurt to go there again.  This is a handy calculator his is a handy calculator or we have our own here: http://pdpla.com/income-tax-calculator-post-2015-budget 

What has this got to do with short lets? Everything.

Running a holiday let business is a trade, not an investment. As such, mortgage interest can be deducted as a cost of business. The challenge is that finance for holiday lets is harder to come by, and more expensive than BTL finance. Solution? If you have sufficient equity use your existing BTL portfolio to free up cash to invest in holiday lets. i.e mortgage property A (single let) to pay for property B (Holiday let). (You claim the mortgage on A as an expense of B and thus avoid S24). There are advantages to running (or getting a manager for) 1-3 holiday lets as part of your portfolio. At this level you can stay beneath the VAT threshold giving you competitive advantage, you may be able to allocate financing on other properties to your short lets, gaining the ability to once again deduct interest payments (this is my opinion, I am not an accountant, seek your own advice on this).there are other tax advantages as well, notably Capital Allowances on purchase and renovations.

You get a property to be proud of, maybe a bit more ‘prime’ than your buy to lets, that makes great cashflow, and you can continue to deduct your interest payments, what’s not to like?

There are, of course, challenges along the way. Port Solent, Gunwharf Quays, Gunwharf Gate and most new developments disallow short lets. PCC are also starting to be more aware. Expert local insight into all aspects of short term lettings are available via our facebook community page Southsea SA or contact myself, Charlotte Walker on 07973 407362. 

Read 402 times Last modified on Monday, 29 January 2018 14:43
Charlotte Walker

Charlotte Walker has been a Southsea Landlord for 20 years, with a range of flats let to students and young professionals. Two years ago, fed up with working, Charlotte started investigating the Serviced Accommodation property strategy. A year on the resignation was in and a new property career was born.

Charlotte now manages short-let flats and rooms for business and holiday guests.

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