Not much change but one big giveaway
I think we can all agree that this was a budget like no other, particularly as it was preceded by a big cut in interest bringing the rate down to nearly zero.
For both us as an agency and our owners the next few months are going to be something we have never experienced before. At the time of writing (appropriately Friday 13th March) we have gained more than we have lost as we’ve had a surge in bookings due to people not travelling abroad and almost no cancellations. Clearly this is about to change and we have been discussing strategy but it’s a bit difficult to plan when you have no idea what is going to happen.
One Big Giveaway
Most of the relevant tax rules remained unchanged but the Chancellor started with the news that he would be extending small business rate relief to cover many more businesses. Happily we are one of them but the real kicker is those that already qualify for 100% relief will get a grant of £3,000. Most holiday homes are in this category and pay no council tax so it appears that all of our owners will be getting a windfall. This may seem too good to be true but I have scoured the small print in the full budget document and seen confirmation from tax experts – there is nothing to exempt furnished holiday lets.
Capital Gains Tax
Provided you meet the minimum letting criteria (available for 210 days and actually let for 105), and have been operating for 2 years, capital gains tax is reduced from 28% to 10% through entrepreneurs’ relief. What did change is that the lifetime limit for entrepreneurs relief has been reduced from £10million to £1million. That’s the value of the gain not the tax so if you have sold a business in your life it’s not that hard to exceed the limit. If you do exceed the threshold you pay the rest at 20% so there’s still a 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 just a second home for many years.
Capital Allowances
The already substantial annual investment allowance of £200k was raised to £1m in the previous budget extended through to the end of 2020. Clearly this is something for big business and 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. In addition all expenditure on items for your holiday home qualifies for full tax relief.
Mortgage Interest Relief
The very substantial changes announced in the emergency budget of 2015 have quietly been phased in with relief effectively halved for higher rate taxpayers after the end of this 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.
It’s going to be a bumpy ride for the next few months but I believe in the long term UK holidays in general and quality self catering in particular are set to benefit.
Simon Tolson owns Rumsey of Sandbanks, a holiday letting agency.
T. 01202 707357
E. office@rumseyofsandbanks.co.uk
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