Written by Director, Huw Moseley:
Lots of the clients I work with are in a fortunate position to own a second property – and it presents an interesting field of accounting. Did you know, for example, Furnished Holiday Lets (FHLs) – quite apart from being a great way to win friends and influence people – are a potentially lucrative additional income?
In order to qualify as an FHL, your property must be, furnished, profit-making, and available to let for 210 days. (Find out more here via Sky Cottages >)
Skye Cottages (link above) have written a really comprehensive guide on this subject, but it’s quite a meaty read… so here are 5 highlights!
- For tax purposes, if you share the ownership of the FHL you can flexibly portion the profit between you however you decide.
- Any income you generate is classed as ‘relevant earnings’ so you can make tax-advantaged pension contributions.
- There’s no Council Tax to pay (because the FHL will be subject to Business Rate property tax – which you may be able to claim back through Small Business Rate Relief).
- Capital Gains Tax (CGT) relief may apply when it comes to selling your property.
- You can deduct the cost of decorating and kitting out your FHL from your pre-tax profits – so luxury standards really can be affordable.
Of course, there are always downsides and here are a couple to consider:
- You’ll need to get VAT registered if turnover from your FHL portfolio exceeds the threshold. (If, like our clients, you run a separate business and are a VAT registered individual, your FHL property income may also be subject to VAT.)
- If your FHL makes a loss, its carried forward and offset against future profits (ie. you cannot offset it against other income.)
If you have a second property – or you’re thinking of buying one – let us know and we will happily explore with you the most tax efficient and profitable way for you to rent it out. Simply get in touch…
