Do you own a property overseas that serves mainly as a summer retreat? Have you been considering renting it out for the rest of the season? Or, perhaps, putting it up on Airbnb? Whatever your plan is, it is important to get things right from the start, including sorting out the tax issues.
That’s why we’ve created this detailed guide on UK holiday let taxation. In this guide, you’ll find a compiled list of the most common questions about holiday lets and their tax implications in the UK. Read on to learn more.
Do I Have to Pay on Renting Out My Holiday Home?
In most cases, you do. There is, however, an important proviso – if your total rental income is less than £1,000, you do not have to declare it to HMRC and you do not have to pay any tax on it. This is what in the UK taxation system is known as Property Allowance (a comprehensive guidance is available from HMRC).
If you are unemployed and your rental income is your only source of earnings, then Personal Allowance comes into play, making a much higher UK property income tax-free.
How Should I Declare My Holiday Let Income to HMRC?
If you have a property that you’re letting as a furnished holiday accommodation, there are specific tax rules and conditions you need to be aware of.
If your rental income is less than £2,500
If your rental income is less than £2,500 after allowable expenses, you can simply give the Self-Assessment Helpline a call on 0300 200 3310.
If your rental income is more than £2,500
If your rental income is more than £2,500, you will need to report it through a Self Assessment tax return. You can use the UK property pages of your Self Assessment tax return to declare this income.
VAT and UK Holiday Let Taxation
If you rent out your holiday home for a long period of time, in addition to Income Tax, you may also have to pay VAT. This depends on a range of factors, so it’s always worth checking with a professional accountant, but VAT threshold is most important. In many cases, VAT only applies if your annual turnover exceeds £85,000.
What Expenses Can I Claim to Reduce My Taxable Income?
The main ones are:
- Furniture you buy for the property
- Estate agents’ fees
- Home insurance
- Advertising fees
- Maintenance and service provider costs (cleaners, gardeners, etc)
- Repair costs (these include home maintenance, but not home improvement costs)
- Utility bills
- Council tax
What are the Special Tax Rules for Furnished Holiday Lettings (FHLs)?
There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).
- You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders).
- You’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures.
- The profits count as earnings for pension purposes.
To benefit from these rules, you need to work out the profit or loss from your FHLs separately from any other rental business.
Can I Claim Mortgage Interest as an Expense?
Yes, to a certain extent. The deductibility of finance costs available for rental properties is restricted by HMRC. The restriction does not apply for Furnished Holiday Lets (FHLs). For your property to classify as a FHL, it has to meet the following criteria:
- It is furnished
- It is in the UK or another country within the European Economic Area (EEA)
- It must be available for letting as furnished holiday accommodation for at least 210 days in the year
- Out of those available days, it must actually be let out for 105 days or more as furnished holiday accommodation
Work With Q Accountants
Want to know more? Get in touch with our accounting experts, and we will be happy to answer your questions.
We offer a range of products and services to help you make the most of your property. We also provide advice and support on tax and legal matters, and we look forward to hearing from you.
UK Holiday Let Taxation FAQs
Do you pay tax on rental income profit?
Yes, you must pay tax on any profit you make from renting out property. Your profit is the amount left once you’ve added together your rental income and taken away the expenses or allowances you can claim.
How do HMRC know about rental income?
HMRC has several methods for tracking down landlords who have not declared their rental income. They can check land registry lists and identify those who have paid stamp duty land tax. They can also check the electoral register to determine who is living at an address, and use data to track rental income.
How much can you earn as a landlord before tax?
The first £1,000 of your income from property rental is tax-free. This is your ‘property allowance’. If your income from property rental is between £1,000 and £2,500 a year, you need to contact HMRC.
You must report it on a Self Assessment tax return if it’s £2,500 to £9,999 after allowable expenses or £10,000 or more before allowable expenses.
What happens if you don’t pay tax on rental property?
If HMRC suspects a landlord has been deliberately avoiding tax, it can reclaim 20 years’ worth of tax payments. They can also impose fines up to the total value of any unpaid tax, as well as the underpaid tax.