Are You Paying The Correct Rate Of Tax On Your Holiday Let?
How do I qualify as a Furnished Holiday Let for tax purposes in Cornwall? Can I register my holiday let for business rates? Do I have to pay council tax on my holiday let in Cornwall? Do I have to pay income tax or capital gains tax?
Getting your head around the tax system for holiday lets in Cornwall can be tricky at the best of times. However, it’s essential that you make sure you are paying the correct tax rates by assessing whether your property is classified as a ‘Furnished Holiday Let’.
Not only because you could be paying more than you have to, but also because you don’t want to get caught on the wrong side of the law.
If you qualify, registering as a Furnished Holiday Let in Cornwall isn’t a choice, it’s mandatory. So it’s essential that you familiarise yourself with the most up to date tax information.
We are here to help!
All of that might sound a bit intimidating, but it’s quite simple once you get your head around it. Luckily, we are here to help you do just that.
Qualifying As A Furnished Holiday Let In Cornwall For Tax Purposes
A Furnished Holiday Let (FHL) is a holiday home with a unique tax status – somewhere between an ordinary rental property and a business. In order to qualify, your holiday let must satisfy the following conditions:
1) Be available to let for a minimum of 210 days/year.
2) Be rented commercially for a minimum of 105 days/year.
3) The total of all individual lettings exceeding 31 continuous days must be less than or equal to 155 days.
If you meet these criteria, then you need to register for business rates. To do this you must contact the Valuation Office, fill in this form and send it back to them. They will then provide you with a rateable value (RV) and a reference number.
What are the benefits?
1) Apply for small business rates relief. If your property has an RV of £6000 or less (highly likely), you won’t pay anything! The rate of relief then decreases from 100% to 0% for properties with an RV between £6,001 and £12,000.
What’s more, from April 2017 the threshold for businesses receiving 100% relief is increasing to £12,000! The tapered relief is also increasing to £12,000 – £15,000.
2) Avoid paying council tax! As you now qualify as an FHL for tax purposes, you no longer have to pay council tax.
3) Get back payments! If you’ve been renting for a while and have met the conditions for an FHL over this time, you can get the application back dated and claim a refund on council tax.
What about income tax?
Any profits made from your FHL will be taxed at the same rate as your income tax. However, any expenses such as maintenance, cleaning costs, mortgage interest or utilities can be deducted. If this results in losses being made, these can be carried forward and used to offset future profits.
What about capital gains tax?
If you ever decide to sell your property, you will unfortunately have to pay capital gains tax. However, FHL’s receive highly favourable rates.
The first £11,100 is exempt (per person) but, due to entrepreneurs relief, anything above this is taxed at a flat rate of 10%.
That’s the basics…
We hope after reading our article you are feeling a little more informed. If you have any questions, or would like to know how our Airbnb property management handles tax affairs, please do not hesitate to contact us!