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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am thinking of letting a flat that co-own with another individual

Resolved Question:

I am thinking of letting a flat that co-own with another individual in London as Furnished Holiday Letting (FHL) via Airbnb or similar.
I want to check the tax implications and other details:
1) will the FHL income/expenses be included in our self trading declaration vs property income as for Buy To Let?
2) Do FHL properties, as a trading asset, qualify for the entrepreneurs' relief when we sell (minimum time needed? what if it was BTL before and FHL now) ie CGT will be 10%?
3) Will we be able to deduct financial expenses (including existing mortgage interest) even after the tax changes on interest expense for BTL?
4) if we were to buy a new FHL property, will the 3% BTL/second home new stamp duty surcharge apply?
5) any particular issues/differences of allocation of expenses when we do works (maintenance vs capital expense) as compared to BTL?
6) do we have to register the flat as FHL somewhere (HRMC, Council, ...)?
7) will we be subject to businesse rates as we would be trading?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Leave this with me while i draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
1 See SA105 property pages which accompany the core SA100 tax return. FHL income and expenses are shown on a separate page to non-FHL rental income.https://www.gov.uk/government/publications/self-assessment-uk-property-sa1052 Yes, they do. See HS275 for the criteria for entrepreneurs' relief. CGT on ER gains is 10%.https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-20153 Tax relief will be given in full for mortgage interest as you are operating a business. This is not the case for regular residential letting as was announced in the Summer 2015 Budget.4 It will because there is no guarantee that a property will be a furnished holiday let as opposed to a second home or a regular let. Look under "Furnished Holiday Lets" below.https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties5 You can claim capital allowances on furniture and furnishings and on plant and machinery. Repairs and maintenance treatment is no different.6 In light of the answer to 7 you will need to inform the local council.7 Yes you will. Look below.https://www.gov.uk/introduction-to-business-rates/self-catering-and-holiday-let-accommodationI hope this helps but let me k ow if you have any further questions.
Customer: replied 1 year ago.
Point 2 seems too good to be true. Let's take an example :Pascal and Ivan have bought a flat for 100K on year 1. They did 50K of works which constitute capital expenses.
During year 1 and 2 the flat is rented under an AST.
At the end of year 2 the flat is valued at 200K
During year 3 the flat is rented as a Furnished Holiday Letting
End of year 3 the flat is sold for 210K.
The capital gain for Ivan and Pascal is 210 - (100+50) = 60K
The whole 60K is taxed at 10% thanks to the benefit of the entrepreneur's relief because the flat is viewed as a trading asset under FHL.
Is this correct?
Expert:  TonyTax replied 1 year ago.
Not the whole gain, no. However, if it were up to me, I wouldn't have ER given on residential property related business and the rules will be tightened up as ER is costing the government too much in tax relief and George Osborne doesn't like it. That part of the gain covered by a period of letting under AST will not qualify for ER. Look here for the meaning of a business for FHL.
Customer: replied 1 year ago.
Thanks.
How to determine the part eligible to ER : prorata of number of years of FHL over total years of ownership?
Expert:  TonyTax replied 1 year ago.
That's it. It's a simple mathematical exercise.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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