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Rent a room tax relief

Rent a room tax relief under review – how will this impact owners holiday letting their main residence?

Rent a room tax reliefAlthough it may seem like a more recent phenomenon, Airbnb was founded a whole decade ago. It has had a massive impact on the holiday home and rental industries in almost 200 countries across the globe.

The platform now has a staggering four million listings across 65,000 cities and is valued at more than $31 billion. What it has done, not unlike Uber, is disrupted an industry norm; where those needing a car would once have traditionally hailed a cab now order an Uber. In turn, those looking for a break will often turn to AirBnB.

The speed with which the business has grown has meant that legislation and policy makers have been constantly trying, often in vein, to keep a pace with changes in order to keep a level playing field for those following the traditional holiday cottage business-model and the regulations and rates they have to pay in turn.

Rent a room tax relief under review

However, the current rent a room tax relief scheme is now under review; so what changes might we see? What will be the impact on those that currently move out of their home for short periods of time in order to list their properties on sites such as Airbnb?

Letting out a room if you’re present in the home

The original purpose of rent a room tax relief was for those living in properties to earn extra income in order to pay for the property itself, and for the person renting the room to have an affordable rent as a result of the tax relief.

For this reason, if you’re wanting to rent a room out whilst you still spend ‘some or part of the time in the property yourself’ then you’ll continue to be eligible for relief on the first £7,500 of income from that letting.

What if you’re wanting to let out the whole property?

Many of the listings on Airbnb allow budding guests the chance to rent whole properties, rather than just rooms. This is where the real proposed changes will affect the listing owners.  Going forward, it is suggested that if a landlord is letting out a whole property, even if it is usually their main residence, they will no longer be able to claim rent a room tax relief.

However, they will continue to be eligible for the new Trading and Property Allowances, which allows up to £1,000 of property income to be earned tax-free. On any income above £1,000, landlords can choose to either deduct the amount of the allowance, or deduct the revenue expenses incurred in letting out the property, such as the cost of replacing carpets or the cost of meeting gas or electricity bills.

So what does that potentially mean in a snapshot?

If you rent only a room within your main residence, there is no great change. You should continue to be eligible for rent a room tax relief. However, if you rent out the whole property you’ll now be subject to the lower Trading and Property Allowance. This is designed to be used against any form of property income.

For more detailed information on these proposals please view the PDF document via this link:

Please note that this article gives only an overview of the proposed changes to Rent a Room Tax Relief. It is not intended as Tax Advice. We suggest you take advice from an accountant before making any decisions in this area. Alternatively contact HMRC for further guidance.

Boshers are specialist providers of holiday home insurance. For information on specialist insurance can help protect your holiday home business, please give us a call on 01237 429444.

 

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stamp duty tax increase second home purchasers

Proposed stamp duty tax increase for second home purchasers

stamp duty tax increase for second home purchasersThis year’s autumn budgetary statement from George Osborne had many looking on intently, wondering just how far cuts would reach, and where extra revenue would be gained as the country continues to ‘balance the books’ and reduce the deficit. Those wishing to invest in an additional home may wish to consider speeding up their purchase before the proposed stamp duty tax increase for second home purchasers takes effect.

For those looking to purchase second homes or buy to let properties there was the announcement that a higher rate of tax duty would be introduced, meaning those buying a property for £500,000 could be stung with an additional £15,000 to pay to the tax man.

What are the proposed changes?

If you’re looking to buy an additional property, whether it be as a holiday home or as a residential buy to let, a 3% surcharge will be applied to each stamp duty band (for all properties costing more than £40,000), with the new measures coming into effect for homeowners in England, Wales and Northern Ireland from next April. Whilst yet to be confirmed, the Scottish Government have also indicated they’re likely to follow suit.

A few working examples:

If your purchase price is up to £125,000 you won’t currently be liable for any SDLT. From April 1, you will have to pay 3% on any second property over £40,000, a tax increase of £3,750.

At the higher end of the scale, you will pay 6% on a second holiday home between £500,000 and £1 million, equating to an additional £15,000 to tax (you would have previously paid £15,000 at 3%).

Here is the full table of tax rate increase:

Property valueStandard rate Additional home rate (April 2016)
Up to £125,0000%3%
£125 – £250,0002%5%
£250,000 – £925,0005%8%
£925,000 to £1.5m10%13%
Over £1.5m12%15%

Exchange and completion overlap

The increases in Stamp Duty mean that many looking to purchase will aim to complete before the April date of inception, and current indications are that the government are holding very firm on that date; even if you’ve exchanged before April 1, the sale must be completed before that date in order to be exempt from the new rate.

However, there will be a number of circumstances where completion is not physically possible, for example the purchase of new-build buy-to-let properties that have been bought off plan but are not going to be completed until after 1 April. To reflect this, there are indications that the new surcharge will not apply where a property exchanged prior to 25 November 2015.

Why the increase in stamp duty?

The Chancellor has proposed the stamp duty tax increase for second home purchasers in a bid to free up houses for first time buyers and families,

Where will your extra stamp duty be spent?

Almost £1 billion will be raised through the extra SDLT, some of which will be reinvested ‘in local communities in London and places like Cornwall which are being priced out of home ownership.’

Consultation

Whilst announced by George Osborne along with a raft of other potential legislative changes, these changes will be subject to a consultation period before final details are made available. The consultation on changes proposed for England and Wales can be read here, only runs until the 1st February 2016.

How will it affect the holiday home industry?

Experts are predicting the changes will impact areas that have high amounts of second holiday homes, such as Cornwall.

In the short term they expect a reduction in the number of buy-to-let sales, but project a recovery once the SDLT changes are embedded into the property market (and therefore incorporated and absorbed into sale prices).

If you are purchasing an additional home for letting either as a buy-to-let or holiday letting property Boshers are here to help you with your insurance needs. We offer specialist holiday home insurance to owners across the UK and can also arrange cover for residential landlords. For more information on how a specialist insurer can help and support you please give us a call on 01237 429444.

Please note that this article gives only an overview of the proposed stamp duty tax increase for second home purchasers. There is a consultation period further to which the details are likely to change. The proposed implementation date is April 1st 2016. We suggest you take advice from a qualified professional before making any decisions in this area.

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Calls for Government rethink on holiday letting tax change

Calls for Government rethink on holiday letting tax change. A GOVERNMENT tax change that could cause the closure of holiday lettings, an increase in second homes and cost the county’s economy an estimated £5 million has been slammed by tourism promoters, owners of holiday homes and MPs.

The Government announced in the last Budget that it was proposing changes to the tax laws related to furnished holiday lettings, which, if they were passed would become effective in 2010.

The changes would see owners of holiday homes no longer being able to claim tax back on furniture they buy to decorate their lettings. They would also be unable to offset losses against other income, and capital gains tax relief would also be scrapped.

Tim Farron, MP for Westmorland and Lonsdale, has joined 63 other MPs in signing an early day motion against the Treasury’s changes. He believes the changes could damage South Lakeland’s tourism economy and lead to an increase in the number of second homes in the Lake District.

“These changes would make it more expensive for people who run holiday lettings,” said Mr Farron. “People would just have to sell them and they would become second homes. We would lose properties that are currently bringing in an income. It would be a loss to the economy and the community.

“The Lake District has an all year round holiday season so the local shops, pubs and post offices are being used by the visitors staying in the holiday homes. Second homes are used perhaps ten weeks a year, so the benefits to the community are far less, it would cost our area possibly £5 million,” he said.

Tony Sawyer, 76, owns four holiday apartments as part of a barn conversion in the Mallerstang valley. He wants the Government to reconsider the change as he believes it is unfair of the Government to ask for higher accomodation standards while taking away the tax benefit.

“It is a business as far as I am concerned, I supplement my pension with it,” he said. “The Government, through its tourism bodies, like Visit Britain, is constantly putting pressure on us to raise standards.

“In the last three years I have spent £50,000 on this, replacing doors, windows and upgrading furniture to improve the visitor experience. It is grossly unfair.”

Mr Sawyer is backing calls by holiday agents Holiday Cottages Group for the Government to scrap the scheme.

“This policy is ill thought out and penalises the wrong people,” said Geoff Cowley, managing director of Holiday Cottages Group. “It’s not the large absentee second home owners, who may have been the Government’s target, that will be affected but the individual owners of successful small letting businesses and rural communities whose income is largely dependent on them.”

Ian Stephens, chief executive of Cumbria Tourism, which promotes tourism in the county, said the organisation stood ‘shoulder to shoulder’ with Mr Farron and the Holiday Cottages Group on this issue.

“We think this is unfair and damaging to the tourism industry,” he said. “Holiday lettings businesses are vital to the rural economy here and this has the potential to threaten jobs and local enterprise.

“The blanket approach of the policy seems to penalise genuine businesses operating within the industry and could possibly encourage more dormant second homes being created as owners take their properties off the visitor market or decide to sell them.

“It also creates a disincentive to invest in improvements which are vitally important for customer satisfaction and influencing repeat visits.

It would also be counter to the Government’s tourism strategy, which wants improvements in the quality of accomodation and more jobs created in rural areas.”

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