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Tax Advantages of Holiday Homes, Boats & Caravans

When you buy a property as a buy to let investment, any rents less allowable expenses and interest are taxable. However if the expenses of letting the property (including loan interest) are more than the rents received, you would make a loss that can only be carried forward  to set against future profits from your letting business.

If however the property is a holiday home, the activity of letting is considered to be a trade. One of the advantages of a holiday home arrangement is that these losses can be set off against your other income in the year in which they arise to reduce your tax bill.

To qualify as a holiday home business you must observe certain rules…

• the property must be available to let as holiday accommodation for at least 140 days in the year.
• you must actually let the property, at proper commercial rents for 70 days a year, and
• you must not let to the same person for more than 31 days during 7 months  of the year.

Keep to these three simple rules and you will be in the holiday lets business!

Because the letting of holiday homes is considered a trade, the property itself is considered to be a business asset. As such it will normally qualify for much more lenient tax treatment when you sell.

If you have owned the property for more than two years, and you are a higher rate tax payer, you should pay no more than 10% capital gains tax when you sell by taking advantage of business asset taper relief.
If you use the property yourself, just observe these rules…

• Make sure that you have the property available to let for at least 140 days.
• When you claim expenses disallow a proportion to cover private use holidays!

It is also possible to rollover the capital gain against the purchase of another business asset because the property qualifies as a trading asset.

Using Caravans & Boats As Holiday Homes
You need to convince HMRC that the boat or caravan is let as a holiday home by following the same rules as above. It is important that the caravan or boat moves (and is not in a permanent location) although in the case of caravans HMRC accept they can be permanent where it is a registered holiday caravan site.

If you can prove that your boat or caravan are let as holiday homes on this basis, HM Revenue & Customs will allow you to claim a deduction from your rents received, called a capital allowance. From 2008/09, in the year that you purchase the boat or caravan you can claim 100% of the cost using the Annual Investment Allowance (for the first £50,000 of capital expenditure). After the first year 20% of the written down value.

Let’s say that you have a boat that qualifies that cost you £20,000 and you receive rents for letting it out of £5000. Ordinarily you would pay tax on the £5,000 but you can now claim 100% of the boat's cost, £20,000. This makes a loss of £15,000 which you can set against your other earnings in the same tax year and claim a tax refund! Although if you use the boat privately the amount of capital allowance you can set against the rents is reduced.

It's one way of getting the Taxman to contribute towards the cost of that yacht you always wanted.

Please note, this is a fairly aggressive form of tax planning and HMRC may try to offer some resistance.

How We Can Help You
We can offer you specific advice in your own situation regarding the tax treatment of holiday homes, caravans and boats.  

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