Jet Accountancy

Many of the recent changes in the taxation of buy to let rental businesses do not apply to property businesses that qualify as furnished holiday lettings (FHL).

In particular the restriction on deductibility of finance costs that started to apply from 2017/18 does not apply to furnished holiday lettings. It may be worth considering investing in such properties to take advantage of a number of other generous tax breaks.

Tax reliefs that apply to furnished holiday letting businesses

Furnished holiday letting businesses are treated as a trade for income tax purposes and accounts should be prepared in the same way as for any other trading business.

• Capital allowances are available on white goods, furniture and other portable items such as cookers, beds.  The cost of new equipment purchases up to £200,000, can be deducted from the net profits of the business for that period.
• Profits count as earned income for pension purposes
• CGT entrepreneurs’ relief applies on disposal of the holiday rental business
• Capital gains may be rolled over into FHL property
• CGT gift holdover relief available on the gift of the rental business.

At present, the Inheritance tax treatment of a FHL is somewhat uncertain.  HMRC maintains the view that FHL’s do not qualify as business assets eligible for 100% inheritance tax relief because they are within the exclusion for investment assets.

What is a furnished holiday letting (FHL) businesses?

There are strict rules for a property rental business to qualify as furnished holiday lettings. The most important conditions are:

• Property must be situated in the UK or European Economic Area (EEA)
• Furnished and let on a commercial basis
• Available for letting for 210 days a year
• Actually let for 105 days a year
• Not normally let for more than 31 consecutive days to the same person (i.e. short lets)
• In other words lettings in excess of 31 days are excluded from the 105 day test as are periods let to family and friends on a non-commercial basis

Averaging Election

For individual landlords the 210 day and 105 day tests apply to the tax year or the first 12 months on commencement of the rental business.

If the 105 day test is not met it is possible to make a “pooling” or averaging election where several FHL properties are rented out in the tax year. You can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. There are separate elections or pools of UK and EEA properties.

For further information on Furnished Holiday Lettings, please contact us on 01366 858538 or email info@jetaccountancy.co.uk.

If you take more money out of a company than you’ve put in – and it isn’t salary or dividend – it’s called a director’s loan.

A director’s loan account cannot be used by sole traders. It is, as the name suggests, a loan account for company directors.

It is important to note that a director’s loan account is not the same as your business bank account or your personal bank account. Instead, it is a “virtual” account that only exists as a means of keeping track of the money that flows between you and your company. This is because, unlike sole traders, your limited company is separate from you.

What this means is that the money your limited company earns belongs to the company, not to you. Of course, there are ways for you to withdraw money from the company, and the director’s loan account keeps track of the interactions between you and the company.

Overdrawn account

You will owe any money you took from the company at the year end, as you will pay dividends after tax. So many people get caught out by this and end up without enough profit left over after tax to fully clear the director’s loan account with dividends. If you have an overdrawn director’s loan account you must declare this on your Corporation Tax return and pay even more tax. The current rate of tax on the director’s loan is 32.5%.

However – it’s important to note that if you are able to repay your overdrawn amount within nine months and one day of your accounting year end, then you will have no additional tax to pay. Even though you will still have to declare the loan on your Corporation Tax return, you will get tax relief on the amount. HMRC have ensured that directors cannot circumvent this measure by taking the money out again as soon as they have paid it. If you withdraw the amount you repaid within 30 days, the loan counts as unpaid.

If you overdraw your director’s loan account by more than £10,000 (HMRC can change this amount) then it can be classed as a benefit as you are getting a loan from your company without paying any interest. This means you must declare it on your personal tax return and pay income tax. You can avoid this by paying interest in your director’s loan equal to or in excess of the rate demanded by HMRC.

This is particularly important to bear in mind if you use your director’s loan account to lend to others as well, such as your spouse, relative or anyone else closely connected to you.

If you’d like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01366 858538 or email us at info@jetaccountancy.co.uk.

What is it?  The Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your husband, wife or civil partner if they earn more than you,

This reduces their tax by up to £230 in the tax year.

To benefit as a couple, you (as the lower earner) must have an income of £11,500 or less.

You can backdate your claim to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.

Who can get it? This is the most important factor as only people with these specific circumstances will be able to apply:

• You’re married or in a civil partnership.
• One of you needs to be a non-taxpayer, which usually just means earning less than the £11,500 personal allowance.
• The other needs to be a basic 20% rate taxpayer (higher or additional-rate taxpayers aren’t eligible for this allowance). This means you’d normally need to earn less than £45,000.
• You both must have been born on or after 6 April 1935.  If not, you may be eligible for Married Couple’s Allowance.
• New. A rule that came into effect from Wednesday 29 November 2017 allows you to claim even if your partner has died since April 2015 and all the other criteria above apply.

It won’t affect your application for Marriage Allowance if you or your partner are currently receiving a pension or living abroad.

In most cases, the allowance will be given by adjusting the recipient partner’s personal tax code. The partner who transferred their personal allowance will also receive a new tax code, if employed. If the recipient partner is in self-assessment, it will reduce their self-assessment bill.

Already applied in the last tax year? You’ll automatically get the marriage tax allowance this year and only need to inform HM Revenue & Customs (HMRC) if your circumstances have changed making you no longer eligible.

For further information on this or if you wish us to apply on your behalf, please do not hesitate to contact us on 01366 858538 or email info@jetaccountancy,co.uk.