THE TAXATION OF HOLIDAY ACCOMMODATION - CLA

THE TAXATION OF
HOLIDAY
ACCOMMODATION

INTRODUCTION

 What do we mean by a holiday accommodation?

  •   B&Bs

  •   Furnished holiday lets

  •   Glamping, caravans

TRADE OR PROPERTY BUSINESS?

 Depends on nature of business

 Trade is defined as any ‘venture
  in the nature of trade’

 Whether holiday accommodation
  is a trade depends on the level of
  services offered

TRADE OR PROPERTY BUSINESS?

   Property Business – profits from UK land or property are
    treated, for tax purposes, as arising from a business.

   Receipt of a rent = a ‘rental business’ for tax purposes.
    But the rental business can include other types of income
    as well as rents.

   Rental businesses generally treated in tax system as an
    investment business.

TRADE OR PROPERTY BUSINESS?

So….
   B & B is a trade

   If furnished holiday let – do you
    meet rules to be deemed a trade?

   Glamping – What level of services
    are you able or willing to provide
    to be treated as a trade?

FHL RULES
 Apply if accommodation is furnished and let on a commercial basis
  and meets occupancy conditions:
  • the accommodation must be available for letting to the public generally
    for at least 210 days;
  • it must actually have been let for periods totalling at least 105 days; and
  • it must not normally be let for longer-term occupation – i.e. a continuous
    period of more than 31 days. In any event, any such periods of longer
    term occupation must not exceed 155 days.

 Commercial means “let on a commercial basis and with a view to the
  realisation of profits”.

INCOME TAX

   Losses from property business treated less favourably
    than trading losses

   Unless income is from a trade it will not qualify as
    pensionable earnings on which tax relief may be
    claimed

   Note: restriction on deductibility of interest if use loan
    to finance conversion works for residential property,
    including FHLs

CAPITAL ALLOWANCES

 Capital allowances must be claimed. If there is no claim
  there are no capital allowances.
 Qualifying business activities is very wide. Includes all
  taxable activities other than passive investment, such as:
  • a trade
  • a UK furnished holiday letting business
  • an ordinary property business

 BUT expenditure related to a dwelling house may not
  qualify

CAPITAL ALLOWANCES
 Capital allowances are available provided the asset is:
    • used wholly or partly for the purposes of the business
    • owned as a result of incurring that expenditure
    • expected to last for more than two years

   Two Main types:
    • Allowances for plant and machinery
    • Structures and Buildings Allowance

CAPITAL ALLOWANCES
 Plant and Machinery Allowances
  •   Annual investment allowance
      Currently £200,000 but increases to £1m on 1 January 2019

  •   First year allowance

  •   Writing down allowance
      18% main rate
      8% special rate (reducing to 6% in April 2019)

CAPITAL ALLOWANCES

 Structures and Buildings Allowance
  • Announced at Budget 2018
  • Will be a deduction from profits at an annual
    flat rate of 2% over a 50 year period
  • Will be available for new commercial structures
    and buildings, including costs for new
    conversions or renovations
  • Eligible expenditure only where all the contracts
    entered into on or after 29 October 2018
  • Cannot be claimed for dwelling houses, nor integral features in a building

CAPITAL GAINS TAX
   Charge arises on gain when an asset is disposed of, whether by sale
    or gift unless relief applies

   Paid by for individuals, partnerships and trustees

   CGT rates 10%/20% or 18%/28%

   Companies pay corporation tax

   Date of disposal is exchange of contracts rather than completion

   Timing is important if cessation of business and want to claim
    entrepreneur’s relief

CAPITAL GAINS TAX

   CGT business reliefs:
    • Entrepreneurs’ Relief
    • Business Asset Roll-Over Relief
    • Gifts Hold-Over Relief

N.B. Only available for trading business BUT gifts holdover
     still available if the asset qualifies for APR

Consider timing of gifts if next generation to run new business

INHERITANCE TAX

   IHT @ 40% on transfer of value above nil rate band
   Nil rate band = £325,000
   Residence nil rate band
    • £100,000 increasing to £175,000 in 2020
   NRBs transferable between spouses
   Transfers to spouse exempt

INHERITANCE TAX

IHT RELIEFS
   APR @ 100% on “agricultural value” of agricultural
    property – includes qualifying farmhouses and farm
    buildings
   APR is applied before BPR
   BPR is @ 50% or 100% for interests in qualifying trading
    businesses
   BPR can bridge the gap between agricultural value and
    market value

INHERITANCE TAX
   Lose APR on land if permanently change the use
   Lose APR on farm buildings if change use to holiday
    accommodation
   Availability of APR on farmhouse may be affected

INHERITANCE TAX

   Is the land or buildings investment property for BPR
    purposes?
   Are any services offered?
   Personal Representatives of Pawson deceased v HMRC
    [2013]
   If not sufficient services - apply principles from Farmer v
    IRC (1999)
    •   Look at whole business in the round
    •   Is it wholly or mainly an investment business ?

VAT
 Separate enterprise for new activity?
  Bear in mind VAT anti-avoidance rules to prevent
  fragmentation of supplies

 Letting land is exempt for VAT so no recovery of input tax
BUT
 Different rules for holiday accommodation

  See: VAT Notice 709/3: hotels and holiday accommodation

VAT - NOTICE 709/3
 Holiday accommodation includes any house, flat, chalet, villa, beach hut,
  tent, caravan, or houseboat.

 Accommodation advertised or held out as suitable for holiday or leisure use
  is always treated as holiday accommodation.

 Must account for VAT at the standard rate on any charges regardless of the
  length of occupation or description of the charges.

 Off-season letting - exempt provided:
  • it is let as residential accommodation
  • it is let for more than 28 days, and
  • holiday trade in the area is clearly seasonal

VAT

       VAT 5% if charge users to
        connect them to a gas or
        electricity supply and metered

       VAT on water and sewerage is
        0% if metered otherwise follows
        main charge

VAT

 Fees for mobile homes, caravan
  pitches charge VAT at standard
  rate unless caravan used
  as principal private residence

 VAT on purchase of caravan is dependent on its size and
  whether or not it is manufactured to BS 3632:2005
  See VAT Notice 701/20: caravans and houseboats

THANK YOU

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