There are some key areas to understand eg
- Capital Gains Tax - potential to reduce your bill when you sell your home, through both Entrepreneurs Relief and by strategically designating your holiday home as your principal private residence for a period
- Ability to roll over any capital gain into a subsequent property or business purchase, so as to defer paying the capital gains tax
- VAT - you have to register if your business income exceeds the annual threshold, but this means you can reclaim VAT on items you buy such as agent fees, changeover fees, utility bills etc
- Ability to offset many expenses, including mortgage interest payments, against income before calculating income tax
- Major purchases can be offset against income
- Ability to offset any losses on the holiday home against other income to reduce income tax
- Potential to carve the property out from inheritance tax
Be careful - some sites are now out of date on Capital Gains Tax. Taper Relief (which potentially reduced the capital gains rate from 40% to 10% for holiday homes) was done away with in April 2008 and replaced with a flat Capital Gains Tax rate of 18%, levelling the field with homes owned purely as second homes or long term lets. However, holiday homes rented out to the public can take advantage of Entrepreneurs Relief giving a tax rate of just 10% on the first £1m of gains in a lifetime.
Here are a few sources:
- A very good page from DirectGOV - out of date on Taper Relief but good otherwise. Read here.
- A landlordzone article.
- Accountingweb
- Property tax portal
- Holiday Let Mortgage site - has a good update on Entrepreneurs Relief
- An article on holiday lettings and inheritance tax aspects
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