Q&A on UK Taxation: Holiday Let
Own a property overseas that serves mainly as a summer retreat? Have 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. We have compiled a list of the most common questions about holiday lets and their tax implications in the UK:
Do I have to pay tax 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 your rental income is less than £2,500 after allowable expenses, give the Self-Assessment Helpline a call on 0300 200 3310
What about VAT?
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
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
This should provide you with the essential information about tax issues around holiday lettings. Want to know more? Get in touch with our team and we will be happy to answer your questions.
