To let, or not to let, that is the question!

by | 9 March 2023

With local authorities set to inflate council tax for second homes, now may be the time to consider your property’s future.

Occupy it!
  • Now may be the right time for you to move in!
  • Remember Private Residence Relief (PRR) applies from the date of occupation unless a PRR election has previously been made.
  • Do not forget the new 60-day report and pay obligation when selling residential property.
  • The Capital Gains Tax (tax-free) annual exemption is reducing to £6,000 for 2023/24 and to £3,000 for 2024/25.
  • The current Capital Gains Tax rate for residential property is 18% where an individual’s income and capital gain fall below the higher rate tax threshold and 28% for any part of the gain exceeding this threshold.
  • Personal pension contributions and gift aid donations can increase the higher rate tax threshold, the latter can also be carried back to a previous tax year.
  • There are investments which can defer capital gains, discuss this with your IFA.
Long-term let
  • Once you find a happy & financially solvent tenant, long-term lets can be relatively easy to manage.
  • With the tenant covering the council tax, running costs and furnishing the property, the only unexpected costs should relate to repairs and maintenance of the building.
  • If the property is mortgaged, only basic rate tax relief is permitted on the interest element.
  • If you do provide furniture, furnishings, or household appliances tax relief for replacement assets are permitted under the Replacement Domestic Items Relief, but not for the cost of the original item.
  • Replacing fixtures such as boilers, bathroom suites and fitted furniture does not fall under this restriction.
  • EPC rating requirements are expected to be raised from E to C from April 2025.
Furnished Holiday Let (FHL)
  • The key benefit may be that you can still use the property!
  • Whilst the income is not guaranteed and can be sporadic, you are unlikely to go through the stresses of evicting non-paying tenants.
  • Unless you are willing to pay for others to carry out the changeover, you may need to be relatively fit to ensure the property is ready following a short turnaround between guests.
  • Utilities need to be factored into the rental charge, noting you will have little control over usage (a greater factor if let during winter months).
  • Small business rate relief may be available resulting in no liability.
  • As an FHL, wear and tear on furniture and furnishings can be high.
  • Holiday management agencies can take the stress out of FHL ownership.
  • Whilst those seeking to meet the small business rate rules in England, (being available for short term lets for at least 140 days and actually let for 70 days); to satisfy the tax based FHL test there is a higher threshold:
    – The furnished property must be available for commercial letting for at least 210 days during the tax year;
    – It must be actually let as such for at least 105 days; and
    – There must be no more than 155 days where the same person occupies the property for more than 31 days during a tax year.
  • The mortgage interest restriction for higher rate residential property landlords does not apply to qualifying FHLs.
  • VAT can come into play; the current turnover threshold is £85k (all business activities of an individual are aggregated for this test).
  • Capital Allowances are permitted on furniture, furnishings and equipment within a property qualifying as an FHL.
  • Remember to negotiate a fixtures value for a s198 election when buying an FHL.
  • If you have no other earnings but wish to make personal pension contributions, profits from FHLs are treated as relevant earnings.
  • FHLs open up capital tax based reliefs such as rollover relief, business asset disposal relief and gift relief.

Property ownership may not necessarily be in an individual’s name; partnerships, trusts and corporate owners all have their own considerations. If you are resident overseas, remember the non-resident landlord scheme applies to both FHLs and long-term lets in the UK.

Finally, with a further delay to MTD ITSA, landlords have a bit more breathing space before this new reporting regime is phased in from April 2026.

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