Holiday Lets

Probe - February 2007
 
If you let a property in a popular holiday location, then you could well be operating a holiday lettings business. This is especially the case if your target market is people visiting and staying in your property for short periods of time.
 
In order for your property to qualify as a holiday let, it must be fully furnished; that is, anyone moving into the property must be able to live from the property without having to buy any additional furniture/furnishings.
 
The property must also satisfy the following three conditions:
 
1.      be available to let to the public on a commercial basis for at least 140 days a year;
2.      be let for at least 70 days a year;
3.      must not be occupied by the same individual for more than 31 consecutive days during at least 7 months of the year, which need not be continuous but which includes any months containing any of the 70 let days.
 
Income tax on holiday lets are charged in the same way as if you are operating a normal lettings business, where tax will be liable on any rental profits less expenses.
 
Operating a holiday letting business has three significant tax benefits.
 
If you are unfortunate enough to make a loss in your holiday lettings business, then the loss is treated as a trading loss and can therefore be offset against any other source of income that you have, in the same way as trading losses.
 
If you decide to sell your holiday let and make a capital gain, then the profit can be re-invested into another qualifying asset, thus avoiding any immediate Capital Gains Tax liability (CGT). This therefore means that you will not be liable to pay any CGT until you dispose of the asset you have re-invested in.
 
However, you can continue selling and re-investing the profits. By doing this, you will continue to defer any tax liability until the point at which you stop re-investing the profit.
 
Finally because a holiday let property is classed as a business asset, you can claim business asset taper relief, which is a more generous relief than non–business asset taper relief.