Category: Insights

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 2016/17 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 like a trading business for many, but not all tax purposes.

1. Capital allowances are available on furniture and equipment such as cookers, washing machines, beds.
2. Profits count as earned income for pension purposes
3. CGT entrepreneurs’ relief applies on disposal of the holiday rental business
4. Capital gains may be rolled over into FHL property
5. CGT gift holdover relief available on the gift of the rental business.

Note that inheritance tax business property relief does not generally apply on the transfer of FHL property businesses.

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:

1. Property must be situated in the UK or European Economic Area (EEA)
2. Furnished and let on a commercial basis
3. Available for letting for 210 days a year
4. Actually let for 105 days a year
5. Not normally let for more than 31 consecutive days to the same person (i.e. short lets)
6. 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.

Maven is one of the UK’s leading investment firms and has over 200 years combined experience of investing in the UK SME and property sectors, as well as a nationwide profile based on long-standing relationships held across the key regional corporate finance territories.

Maven offers investors the opportunity to gain exposure to a wide range of UK private companies, investing either through the tax-efficient structure of a Venture Capital Trust (VCT) or co-investing on an individual transaction basis as an Investor Partner.

Investor Partners can also gain access to Maven’s expertise and transactions in the commercial property sector, where we source and undertake a range of projects which may offer income as well as the prospect of capital gain at exit.

Greater Manchester Loan Fund

The Greater Manchester Loan Fund provides finance of between £100,000 and £500,000 to growth focused businesses in the Greater Manchester region. The GMLF also offers the potential for follow-on funding of up to £750,000 to qualifying companies in exceptional circumstances.

The Fund, which is managed by Maven, was set up by the Association of Greater Manchester Authorities to encourage growth whilst creating and safeguarding jobs.

Why choose funding from Greater Manchester Loan Fund?

Businesses may choose to work with the GMLF for a number of reasons. Often it is because they cannot get some or all of the funding they need from a bank, or provide the security that a bank may require. In other cases the business may need a longer capital repayment holiday than a bank can provide, or need a longer period in which to repay the debt. The GMLF team are experienced finance professionals who can take the time to understand a business and construct funding packages that can provide the capital it needs to grow.

Eligibility

The Greater Manchester Loan Fund will consider businesses which meet the following criteria:

Established businesses with an operating base in the Greater Manchester region.

Have an existing trading history and genuine growth potential.

Meet the EU definition of an SME i.e. fewer than 250 employees, an annual turnover of no more than €50m, and/or an annual balance sheet Net Asset Value below €43m.

Whilst the Fund has no sector bias it will be unable to provide finance in certain recognised investor sensitive sectors. Please contact a member of the Maven GMLF team should you wish to discuss any of the above.

See the website for more details

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 December 2017. Where there has been a change the previous rate is shown in brackets.

Engine Size                           Petrol                     Diesel                     LPG  

1400cc or less                     11p                                                             7p

1600cc or less                                                             9p

1401cc to 2000cc               14p  (13p)                                                            9p (8p)

1601 to 2000cc                                                         11p

Over 2000cc                       21p                      13p (12p)                       14p (13p)

Much of the focus in the Autumn Budget on Stamp Duty Land Tax (SDLT) concerned the abolition of the duty for first time buyers of property up to £300,000. There was also welcome news for those involved in other property transfers where the 3% supplementary SDLT charge potentially applies when an interest in a second property is acquired.

The 3% supplementary charge will not now apply where a court order issued on a divorce or dissolution of a civil partnership prevents someone from disposing of their interest in a main residence or a spouse buys property from their spouse. There are a couple of other situations where the 3% supplement does not apply. This is something to check with your solicitor.

For a number of years there has been a generous 100% tax break for businesses that install energy saving technology in their premises. This is in addition to the £200,000 annual investment allowance for plant and machinery.

The technology that qualifies for this 100% tax break includes energy efficient boilers and energy saving lighting systems. This is set out in the government’s energy-saving technology list. The list is updated each year. It was announced in the Autumn Budget that new technologies were being added but also certain items such as Biomass fired warm air heaters would no longer qualify from 1 April 2018.

Note also that where the expenditure has the effect of creating or increasing a loss for corporation tax purposes, the company can obtain a repayable first year tax credit. This credit, based on the amount of the loss attributable to the energy-saving technology spend, reduces to 2/3 of the corporation tax rate from 1 April 2018. Thus the relief reduces from 19% to just 12.67% from 1 April 2018.

The new inheritance tax relief for passing on the family home is protected even when you downsize to a smaller property.

For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and still get the inheritance tax relief!

New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.

From 6 April 2017 an additional nil rate band of £100,000 is now available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. This additional relief is however restricted If your assets exceed £2 million. The rules are fairly complicated but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

For most taxpayers the maximum pension contrbution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and their employer.
Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current, but then lapses if unused. Note also that for higher rate taxpayers the net cost of saving £10,000 in a pension is only £6,000 but this higher rate relief may not last for ever.