Do You pay Capital Gains on a holiday let?

Do You pay Capital Gains on a holiday let?

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Owning and letting a holiday home can be both pleasurable and profitable and in many cases it will give you good tax advantages if the property is let on a commercial basis. 

The property will need to be let out for at least 105 days during the tax year. These tax advantages were given to help kick start the UK holiday industry because many people were going abroad on low cost package holidays.

To qualify as a furnished holiday let, your property must be in the UK and let fully furnished with the intent of making a profit. Having a website or using an agent would help show that intent. 

Your property should be available to be let for 210 days a year and let for a total of 140 days. Lets of over 31 days and letting your home to friends and family for free do not count. 

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be an FHL for that year.

If you have a qualifying holiday let you will need to register for business rates and then you will pay no council tax. 

What about Capital Gains Tax (CGT) on the sale of a holiday let? 

Yes, it will be payable but if the business is registered as a FHL, furnished holiday let then you don’t have to pay the tax on the first £11,000 profit. The rate is then reduced to 10%. 

This is because an FHL owner can qualify for Entrepreneurs’ Relief (ER). This is very beneficial as it will allow you a reduction of capital gains tax payment from 28% to 10% on the first £10 million of gains. To qualify you must have owned the property for 12 months.

We strongly suggest that all persons interested in purchasing or who own a holiday let(s) should seek the advice of and work with a qualified professional such as an accountant. We are happy to refer you to such a person or business. 

Tax Advice On Capital Gains

Tax advice should be sought before selling a FHL, as there are likely to be Capital Gains Tax consequences.    

When a qualifying furnished holiday let is sold, Capital Gains Tax Rollover Relief could be available to defer the gain if you reinvest the proceeds in another qualifying asset.

Entrepreneurs Relief should also be available to reduce the rate of Capital Gains Tax to 10% on any chargeable gain. 

From 6 April 2020 new Capital Gains Tax reporting rules also came into force for the sale of UK residential property meaning the gain must be reported and tax paid within 30 days of completion of the sale, further information can be found here.