Showing posts with label property. Show all posts
Showing posts with label property. Show all posts

Tuesday, June 9, 2015

The tax implications of using Airbnb in the UK

Airbnb is gaining in popularity every day. Just in London there are more 20,000 properties available on the Airbnb web site. With occupancy rates as high as 80% you might be tempted to convert your regular Buy to Let investment (BTL) into an short term let. While you will most probably increase your yields (yields are typically as much as twice what you can get on a regular BTL), doing so is fraught with risks that you need to be aware of.

The first question is to answer is if your property business qualifies as a Furnished Holiday Let (FHL). HMRC spells out the rules very clearly. In a given tax year, an accommodation qualifies for FHL if:
  1. The property is located in the UK or the EEA and is let commercially (i.e. with the intention to make a profit)
  2. The total of all lettings that exceed 31 continuous days is less than 155 days
  3. The property is available for letting for at least 210 days in the year (excluding your days of occupancy)
  4. You have let the property as a furnished holiday accommodation for at least 105 days in the year (excluding periods let at reduced rate to friends or let for more than 31 days).
Please note that if you business is considered a FHL, the tax treatment will be different. And you cannot just opt for regular BTL tax treatment instead. Also, all your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business (losses cannot be transferred from one business to the other or to any other business -- no more sideways relief).

So here are the important points to consider:

Thursday, December 5, 2013

Non-Residents to be subject to Capital Gains Tax

One of the announcements made today in the Autumn Statement is that capital gains tax will be extended to non-residents who own residential property. This extends the previous measure to bring non-resident companies within the scope of capital gains tax on 'high value' residential property, measure that was introduced alongside the infamous ATED (Annual Tax on Enveloped Dwellings). So now both high value and low value residential property gains will be taxed, regardless of whether the property is owned by a company or not. The change is to take effect in April 2015.

This move was expected but still, it could reduce confidence going forward. Non residents were strongly encouraged by the Government to take their properties out of companies so that a future sale of bricks and mortar (rather than shares) is subject to stamp duty. In exchange they would not be subject to the annual charge (ATED) nor to the capital gains tax. Having de-enveloped as they were asked to do, they will in fact be subject to capital gains tax after all.

Friday, September 13, 2013

Annual Tax on Enveloped Dwellings due soon

Announced in the March 2012 Budget, the Annual Tax on Enveloped Dwellings (ATED) return -- called at the time the Annual Residential Property Tax (ARPT) -- is due by October 1st 2013. The corresponding tax liability has to be paid by October 31st 2013.

If all of the following criteria are met, an ATED return is required by 1 October 2013:
  • a company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners or a collective investment scheme which holds UK residential property, and
  • at least one single-dwelling interest was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and
  • the single-dwelling interest was still owned on 1 April 2013

Friday, May 24, 2013

Revenue taxation from properties held jointly

When a property is held in joint names, it is important to keep in mind that the tax treatment of revenue is different for married couples (or those in a civil partnership) and for unmarried couples. For unmarried couples, revenue is taxed in the beneficial split, i.e. whatever they have agreed between themselves. Where a couple who are married or in a civil partnership however have a jointly owned property, income arising from that property is assessed on the basis of equal entitlement rather than actual ownership, ie on a 50:50 basis. It is possible, to elect to have the income assessed in the ratio of beneficial (actual) ownership instead and this election is made on Form 17. The form can be downloaded here. The form must be submitted to HMRC within 60 days of being signed and must be accompanied by proof of ownership. The election cannot be backdated and is effective from the date on which the form is signed. It remains in force until the couple cease living together as a married couple/civil partners, or until the actual ownership changes. This election must be made to the tax offices dealing with both parties.

Thursday, December 20, 2012

Owning UK property in an offshore company

Until recently UK resident and non-domiciled individuals investing in UK property would have been advised to use an offshore company to hold the title. This not only allowed the owner to avoid the 40% UK inheritance Tax (IHT) but also offered the potential for future buyers to avoid stamp duty (SDLT) by acquiring the company shares rather than property title to the UK property. Perhaps not surprisingly the UK government decided to legislate in this year's Budget to prevent this loss of revenue from residential properties (commercial properties are unaffected).

The draft legislation published on 11th December 2012 outlines the new taxes and charges which will have to be paid by Non Natural Persons (NNP) owning property in the UK. There is already a new punitive rate of Stamp Duty (SDLT) where a NNP acquires a UK residential property for more than f2m (15% instead of 7%). And from April 2013, NNPs owning properties valued in excess of £2m will also be subject to an annual charge (called the Annual Residential Property Tax or ARPT). The charge will be £15,000 for properties valued between £2m and £5m, £35,000 for properties valued between £5m and £20m and £140,000 thereafter.

Thursday, March 29, 2012

More bad news for non-doms

Non-domiciled individuals have been watching this Budget particularly carefully as it had already been announced prior to its delivery on 21 March 2012 that the Chancellor would be taking action in relation to individuals who acquire UK property through offshore companies. In order to tackle what the Government calls the 'enveloping' of high value properties into companies to 'avoid paying a fair share of tax', three measures are to be introduced:
  • a new 15% rate of stamp duty land tax (SDLT) to purchases of UK residential properties worth over £2 million by 'non-natural persons'
  • an annual charge on UK residential properties valued at over £2million owned by such persons
  • an extension of the capital gains tax (CGT) regime to gains on the disposal of UK residential property and shares or interests in such property by non-natural persons who are non-resident

Wednesday, November 16, 2011

Furnished Holiday Let Changes

Furnished holiday lets (FHL) have a special tax treatment in the UK. The rules have changed in recent years and will continue to change going forward. It was thought at some point that the scheme would disappear altogether following the extension to EEA properties in 2009 but it now seems that it's not going to be the case.

The benefit of the scheme is that it allows the business to be considered as a trade (with some restrictions) and in particular benefit from capital allowances on fittings, furnishings and also tools (such as vans) but also have access to capital gain reliefs such as rollover relief and business taper relief. While in the past it was also possible to offset losses against total income (not just rental income), this is not possible anymore since April 2011 and losses can only be offset against the same FHL business (UK and EEA FHLs are considered separate businesses).

Monday, May 30, 2011

Owning property via a limited company

When you purchase properties in the UK, you might be tempted to setup a company to do the purchasing. As with any business incorporating has a great number of benefits, like reduced taxation and increased flexibility. Property investing however has some specificities that need to be kept in mind before you decide to make the jump. Here are some of the benefits and drawbacks of incorporating when doing property investments:

Benefits of owning property via a company

1. Flexibility regarding share transfers
2. Reduced stamp duty (0.5% vs. up to 5%)
3. Lower tax rates on net rents
4. Indexation allowance on capital gains
5. Profits can be reinvested
6. Income may be extracted by dividends
7. A company has limited liability