When is a holiday let not a holiday let? When it is a holiday home….
There have been stirrings and accusations in the world of holiday lets this month as HMRC announce a clampdown on holiday homes. Where does this fit in to the jigsaw of short term lets?
Here is a starter-for-10 in the mastermind of Holiday Lets
(This piece is opinion, seek professional advice for your own situation).
A holiday home is just that, a second property for the exclusive use of you and your family/friends at little or no contribution to the running costs.
A Furnished Holiday Let is a trading business, the HMRC defines it as follows:
'You must let the property commercially as Furnished Holiday accommodation to the public for at least 105 days in the year.
Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.
Do not count longer-term lets of more than 31 days.'
There are a few more caveats but this is the essence.
Covid has thrown up a few operational difficulties. Many commercial Holiday Lets have fallen out of the conditions for HMRC, they have either taken a longer term booking or closed, or failed to meet the 105 day rule. This is further complicated by the position on Business Rates.
A holiday home pays Council Tax, a commercial Holiday Let pays Business Rates, the majority of owners only have one so benefit from small business rates relief. If this is the case they have had generous government support as well as exemption during Covid. However, if your holiday let has dropped below 105 days occupancy during your tax year, you should no longer pay Business Rates (exempt) but revert to Council Tax (payable), you lose the discount as well as any ongoing support from the Government.
In addition, because it is a trading business it is possible to offset mortgage interest relief as an expense, if you drop out of it being a Furnished Holiday Let in tax terms, the mortgage payments revert to rental rules and section 24 applies.
If you fear that your Furnished Holiday Let has been under-occupied I suggest that you run it by your accountant before engaging a manager that will ensure that you are let for 140 days/year. This may mean lowering prices and accepting Mon-Fri bookings from workers to keep your occupancy up. It is likely that it will soon be necessary to prove that your property is available for bookings in order to qualify for the generous tax regime given to Furnished Holiday Lets, the net is closing and, as always, keeping your paperwork up together is paramount.
The HMRC clampdown is primarily aimed at those who wish to keep their property private and reluctantly enter the holiday let market to benefit from the tax breaks. Having strangers in your holiday home is an inconvenience, but one that you are amply rewarded for and, if well managed, can meet the 105 day requirement without difficulty or undue inconvenience to the owners.