Holiday Home Investments #3 Tax Benefits

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Video Transcription: 
Hey guys, so welcome to this video. So this is on Holiday Home Investments, The Tax Benefits, okay? And this is a really good one. The great thing about this is not only is this just like a…not only is this like a normal business, hasn't been affected by any of the buy-to-let changes, you know, tax changes, but none of that's also sort of affected this.

But what we're talking about when we talk about it actually has its own special category with HMRC in the UK, you know, UK tax department which is basically furnished holiday lets, okay? And there are criteria for that, you know, some of the criteria. So what it means effectively is you can deduct the furniture, you deduct the fittings, you know you can deduct all the finance costs, it acts like a real business.

So if you spend a buck, you can claim that against the business. If you have to go and see the property and view it, you can claim that against the business. Obviously, there are wholly, exclusively, and all those sorts of things. And look, what I wanna say first up before we start getting into the details is that this is not, you know, I'm not a tax accountant, I'm not advising you on tax here.

What I'm doing is I want to stoke the fire, if you like, so you can go on and go onto the HMRC website and it will fully explain stuff there. It's, you know, it's relatively confusing but it is relatively simple to be fair. The big thing is what happens is as soon as you buy that you get to deduct the full furniture upfront. Now, what that means is your income for somewhere between four and seven years you're not gonna have any tax due on that income.

Now, your furnished holiday lets that are in the UK, they are treated separately than ones in Europe and the rest of the world. So basically, if you've got let's say a Spanish property and you've got a UK property, then they will be treated separately, you can't join the income and expenses together, you know, and work out the tax. You work out that one and you work out that one, they're separate income streams, same as your buy-to-let will be a separate income stream again and your income from your job is a separate income stream.

I mean it's a stupid system, they should chuck it all in and say, “Right, that's what you've earned. These are your deductions, you know, that's what you're leftover, pay tax on that.” Make things so much simpler but, hey, the tax is not about being simple, it's about being very complex and changing all the time, and you know voluminous books to actually try and read and that's why you've got to get an accountant involved. So like this, you will need an accountant but we can, you know, refer that off no problems whatsoever.

It's not difficult for an accountant to understand and know what's going on here. You know, look, the deductions all…pretty much all the deductions you can think of that a business has, plant and equipment, you know, anything like that you get to deduct, okay? So you'll have an income coming in, you'll have to pay, you know, various fees, charges, blah, blah, blah, finance costs because you can get mortgages on these, okay?

And because of that, yeah, you can deduct all that, which is great. And there are some benefits with being a furnished holiday let if you meet the criteria that you can get through doing that which is basically you can deduct the full expense upfront rather than what you do is basically depreciate it over time, okay?

So, entrepreneurs relief you can get, you can get rollover relief, so if you sell the asset and roll it into another asset you can actually, you know, avoid paying tax on that sale. So there are all these sorts of things which, you know, are right there. What you have to do… Okay, now what I'll say here, we are gonna treat this professionally, okay? You can treat this as, “I'm buying a holiday home for myself and now what I'm gonna be doing is I'm gonna rent it out on the side,” okay? If you do that then you have to meet certain criteria in order to call it a furnished holiday let, okay?

So, what are those criteria? Look, basically, it's gotta be available for 210 days a year and it's gotta be rented for more than 155 days, and you can't give it to anyone, family friends, blah, blah, blah, aren't included so if you send family and friends yourself, that's not included in that total. You can't exceed anyone, you can't have people in there for more than 31 days in a row and I think it's four times a year, something like that.

You basically have gotta… Now, you've gotta have it let for… It's 100, sorry. It's 105 days per year you've gotta have it, that's the threshold. But say you've got UK properties. If you have multiple holiday homes you can actually look at those and put them together and then average it. So, there's a couple of different ways of working it out.

So, say for instance you've just bought one and you're building up the rentals, okay? Then, you know, that might take a couple of years. I think you've got three years grace period before you can't claim anymore. But so there's a lot of good things like that, yeah? So tax-wise, you know, it's preferable tax so it's not like buy-to-let, it's treated totally separately.

HMRC has, you know, I won't say wonderful because I don't really attach with the word wonderful. I don't even think HMRC does, but they do explain on their website and I recommend you go and have a read of that and that'll give you a bit more detail. But when it comes the time, if you're gonna, invest then we'll get you in touch with the accountant and they can explain in full details and, you know, you can look at all that.

So that sort of sums up the tax benefits. It's, you know, bloody good. You've got four to seven years before you're going to potentially be paying tax on your income because you can deduct all that as a purchase cost, okay? And then obviously, you know, as furniture breaks and things like that and you've gotta replace it, you'll be able to deduct that upfront as you spend it as well. That's one of the benefits of a furnished holiday let. All right guys, have a great day and live with passion. We'll see you in the next video.

About the author


Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Ezytrac. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.