Small changes, stealthy arrivals and a warning shot from the Chancellor for holiday home owners
It’s the changes to personal taxation, minimum wage, NHS spending and other investments that make the headlines but as usual the devil is in the detail for holiday home owners and other small businesses. There’s a recognised strategy for both governments and big businesses to wait for a big news day to make an unpopular or unflattering announcement and with Brexit dominating things many of us were scouring the small print of the 107 page full budget document to look for low key changes that could impact us.
Capital Gains Tax
No change to the rate or qualification for holiday lets – provided you meet the minimum letting criteria (available for 210 days and actually let for 105) capital gains tax is reduced from 28% to 10% through entrepreneurs’ relief. What has changed is the minimum qualifying period has been extended from 12 to 24 months. Hard to argue with this one as 12 months always seemed a short time to operate for such a large benefit.
Retrospective Relief – No mention so our assumption is that under the right circumstances after 24 months entrepreneurs’ relief would apply to the whole gain on a property, even if it had been rented on an AST for many years.
Payment of CGT – no mention but a requirement to pay within 30 days of a property sale was previously announced then pushed back to April 2020. If you sell in this tax year you can sit on the money until January 20 and I assume that the bill for sales in the 19/20 tax year will fall in January 21.
The already substantial annual investment allowance of £200k is raised to £1m. Clearly something aimed at big business, capital allowances for holiday home owners are effectively unlimited. This a particularly great benefit for those starting to holiday let a second home who can often write down £50k or more of fixtures and fittings making their first £50k of profit tax free regardless of the rate they pay at.
Mortgage Interest Relief
No mention in this budget because the very substantial changes announced in the emergency budget of 2015 are quietly being phased in with the final step in the next tax year. Surely the policy wonks who came up with this have been awarded knighthoods by now?! It’s an aggressive measure that crosses a red line in that it’s possible to be liable for tax on profit that you haven’t made, will have a very substantial effect on some portfolios making them loss making yet is arriving with almost no fuss or protest. For most landlords the effect will be an irritating tax increase rather than a catastrophe but you need to work out what the change will mean for you. Thankfully holiday lets remain exempt from this measure so qualifying properties continue to get full mortgage interest relief.
Council Tax Exemption/Business Rates Relief
Holiday lets are business rated and provided you only have one, you get small business rate relief at 100% so pay no council tax or business rates. In England this applies if you are available for 140 days regardless of how many weeks actually let, which is more than generous. The budget documents include the following warning:
‘Business rates treatment of self-catering and holiday let accommodation – There is concern that some owners of properties that are not genuine businesses may seek to reduce their tax liability by falsely declaring that the property is available for let. To ensure that second properties are subject to the appropriate tax, the government will consult on the criteria under which self-catering and holiday lets become chargeable to business rates rather than council tax.‘
To me the obvious change would be to apply the same qualification criteria as the rest of the tax system but removing council tax exemption from second home owners would hardly see activists marching on parliament so could the review remove the benefit completely?
Anyway, let’s not forget that generally we only pay tax if we make some money and concentrate on selling holidays. Fortunately, on the back of the weather this year and some economic uncertainty the ‘staycation’ market is buoyant and we’re expecting a great 2019.
Simon Tolson owns Rumsey of Sandbanks and writes about holiday home tax, finance & marketing. Read more at www.rumseyofsandbanks.co.uk/ownerblog
Contact Simon on 01202 707357
Rumsey of Sandbanks, 2 Banks Road, Sandbanks, Poole, Dorset BH13 7QD