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Taxation and Holiday Lets

Many farmers have diversified into holiday letting of converted farm buildings. But what are the tax consequences? There is Business Property Relief (BPR) for Inheritance Tax (IHT) to consider as well as Entrepreneur’s Relief (ER) for Capital Gains Tax (CGT) and Value Added Tax (VAT) as well as Income Tax (IT)

What qualifies as a holiday let?

The letting must satisfy these conditions:

you must make the property available for commercial letting for at least 140 days in a year
and it must actually be let as holiday accommodation for at least 70 days a year
you must not normally let the property to the same tenant for a continuous period of more than 31 days in seven months of the year.

What if I cannot fulfil all those criteria?

You may still get IT CGT and national Insurance (NI) advantages but you will need to show genuine evidence of services being provided to genuine holidaymakers. To do this you may need to prove some or all of the following:

  • the property is in a tourist area
  • it has been professionally marketed
  • small business rates are paid
  • the property has an English Tourist Board rating
  • you have public liability insurance
  • you are paying tax on profits made on a commercial basis
  • there are additional services provided such as food welcome basket, towels and linen provided cleaning and gardening are arranged though these services can be handled by a caretaker or agent. It may also be helpful to have information on tourist attractions in the area.

Will I get BPR on my holiday cottage?

At the moment the Revenue are making it very difficult to claim BPR and you almost certainly will not be eligible for APR (Agricultural Property Relief) even where your farm is. So BPR becomes very important.

To have any hope of qualifying you need:

  • To have more than one holiday let
  • You are substantially involved in running the services provided.
  • Have short term lets – 1 or 2 weeks

And avoid

  • Lets where no services are provided
  • Letting to friends and relatives
  • Longer term lets

What is the VAT position?

Standard rate VAT applies to rents on holiday lets. It is possible to treat the let as residential accommodation if let at lower rates out of the holiday season if they are let for more than 4 weeks but this can cause problems with other taxes. Therefore it is possible that you may have to charge output tax on the VAT return and then be able to claim input tax on repairs and related costs. If you plan to carry out extensive renovations on the holiday let do take some advice as if you organise it well it may help your tax position.

If you have more than one let turnover may rise above the VAT registration limit

Do I have to pay CGT?

CGT is only payable when a property is sold. The changes in CGT mean that the tax is now 18%. When the change was made there were winners and losers – generally those people who had owned a property for a long time were losers and for a short time winners.

You cannot claim business taper relief anymore but for some people ER may be available which allows for 10% tax for £1million of lifetime gains on business disposals.

Rollover relief may also apply.

Law correct at May 2015

For additional information, please contact Jean Newton on 01905 721600 or via email


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