Holiday Lets

Wayneo157

Hi,

Can anybody help me please?

I have a client who are a husband and wife partnership. They own a farm and run a B&B and tea rooms on the farm. They also have a separate cottage on the farm which they want to let out.

They want to let it as holiday lets in the summer and a 5 month lease in the winter. Can this be set up as a separate business or does it have to be classed as property income?


Ps I still haven't got any professional cover sorted out yet, so if anyone near Seaton in Devon could help me out please let me know.

Thanks

Wayne

T.C.

I would treat this either as part of the business and use the Land and Property pages on the partnership return or split it 50:50 and put it in Land and Property pages on the individual returns.

Dean

TC, is this not Trading Income?

I suspect the Reveune will want to call it Trading Income and add it to the profits of the Farm and B&B.....

Regards

Dean

T.C.

Yes, so should the income not be treated as land and property income in the main partnership return?

Dean

In old money it will be reported as DI income not as Sch A. Therefore, it doesn't go in the land & property pages. The current benefit is the the Holiday Let with qualify for Business Asset Taper Relief..... until 06.04.08 that is! :thumbdown:

Regards

Dean

T.C.

Well we learn something new everyday. So to go back to the original question, it would have to be tied into the main business!? :001_unsure:

Dean

These type of question can get quite complex and more detail might be need to get the best end result but as it stands; Yes you could have it as a separate 'business' (or should I say, you can keep the bookkeeping separate)and prepare separate accounts but essentially it will be taxed as DI like the rest of there other income.

Throwing another spin on things; maybe post 6th April you don't want it as a holiday let and have it in joint names to make use of two capital gains thresholds? Maybe you do want it as DI income to offset the trading expenses.... this is why it's down to the client and agent to talk and come up with the best structure - difficult to say on a forum, just thought I'd thrown in some thoughts behind tax planning :biggrin:

Regards

Dean

Wayneo157

Thanks Dean and T.C. for your replies.

The client wants to set this up as a separate business, or at least to keep the accounts separate from the B&B and Tea Rooms. As long is it is DI then I cannot see a problem with that.

There is a further complication though. Currently their turnover is below the VAT threshold and therefore they are not registered for VAT. If the income from the cottage is included with the B&B income then it is possible that they will exceeed the limit. They are reluctant to do this as their income would be standard rated and most of their expenditure would be zero rated.

If the "two business" can be treated as two separate VAT tax points then they will not have to register for VAT.

Would there be a problem in treating them as two separate tax points or will the HMRC want to treat it as one tax point. :001_unsure:

Regards

Wayne

Dean

See, there's always more detail :001_tongue:

The rental or letting is zero-rated (presumably, there is no 'opting to tax' in place) therefore the rent received is not taxable and any expenditure incurred to provide the letting is not recoverable.

When monitoring VAT thresholds you only watch the levels of the 'taxable supplies'. So here you would leave out the letting income.

Regards

Dean

Wayneo157

Thanks Dean,

The devil is always in the detail!

If the letting income is zero rated, surely it still counts as taxable supplies. I thought only exempt items were not included in taxable supplies:confused1:

Regards

Wayne

Dean

Wayne, quite correct. Rental income in exempt unless you have an option to tax in place. I had my zero and exempt confused there for a minute.

Regards

Dean

Wayneo157

Thanks Dean,

There is no option to tax in place so the Rental income is exempt. I can now advise my clients the best way to set up the accounts on the business and they will be happy and so will I. :thumbup:

Regards

Wayne

T.C.

Yes, but don't forget that this means that supplies are exempt too!

Wayneo157

Thanks T.C.

I won't forget that but at least the income streams from the taxable supplies are going to be well below the threshold and therefore there is no requirement to register for VAT. :laugh:

Regards

Wayne

Wayneo157

Hi Guys,

Sorry to bring this one up again, but from some recent events I have been told that holiday accommodation is not exempt from VAT.

Therefore as my clients income in the summer is going to be holiday lets we go back to the original problem and can this business be set up as a separate tax point for VAT purposes?

Help please :001_unsure:

Regards

Wayne

Dean

On further investigation i've found this:

V1-8: Land and Property
Page 59 of 140
11. Holiday accommodation (Item 1e)
11.1 Liability of holiday accommodation
The provision of accommodation in a building or structure advertised or held
out as holiday accommodation has always been standard rated.
11.2 What is “holiday accommodation”?
For VAT purposes the term “holiday accommodation” takes on a very broad
meaning and includes:
• supplies of dwellings in which occupation throughout the
year is not permitted (see paragraph 11.3)
• sites for holiday chalets
• any accommodation in a building, hut, caravan,
houseboat or other structure held out as suitable for
holiday or leisure use.
The term does not only apply to sleeping accommodation, as considered by
the Tribunal case Poole Borough Council (LON/91/1072Z):
The appeal was against the Commissioners’ ruling that the letting of beach
huts and sites for beach huts were standard-rated supplies.
The Tribunal concluded, in dismissing the appeal, that accommodation will
rank as holiday accommodation whether it can be lived in or not. To be
holiday accommodation the definition envisages something that
accommodates the typical requirements of holiday makers and people
engaged in leisure activities.
11.3 Dwellings with a restriction on all-year occupation
UK law taxes new dwellings, and ground rents and service charges paid for
dwellings, if the purchaser cannot legally live in the building throughout the
year. This will either be because of a restriction in the lease, or a restriction
imposed by the local planning or similar authority. Typically, residence in the
dwelling is forbidden for one or two months each year. This is one of the
criteria used to identify and tax holiday and leisure homes.
In the Tribunal case of Mrs Barbara A Ashworth (LON/94/221A), the
Tribunal held that a restriction on all-year occupation is not in itself sufficient to
treat the property as a holiday home and therefore tax the new dwellings and
ground rents and service charges. There must be something else.
When dealing with this type of development, you will need to ask the following
questions:
(a) Is the development as a matter of fact a holiday or leisure
site?
(b) Is the development marketed as a holiday or leisure site?
V1-8: Land and Property
Page 60 of 140
(c) Is there a restriction imposed by the developer or
planning authority which prevents someone from using
the property as anything other than a holiday home or a
second home (ie it cannot be used as a person’s principal
residence)?
(d) Is there a restriction imposed by the developer or
planning authority which prevents someone from
occupying the property throughout the year?
If the only difference between the development you are dealing with and a
normal residential development is that there is a restriction on all year
occupation (that is, (d) applies, but not (a), (b) or (c)) then the dwellings and
the ground rents and service charges are exempt from VAT. The supply
cannot be made standard-rated by opting to tax because the building is a
dwelling.

Chapter 11 can be found here:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_PROD1_023492&propertyType=document

Holiday lettings i've dealt with have always been way under the limits and they will be in this case too. It whether it is attached to your clients other activities. Which I think you'll find they are.

Regards

Dean

Poodle

Wayneo157 wrote: »

Hi,
and a 5 month lease in the winter.

Hi

Just read through this thread. I had a similar sort of thing with some cottages on an farm estate.

Not sure if you have addressed the dual use of the cottage, the holiday lets would be standard rated but the 5 month lease would be exempt.

You should also be careful as this will put your client into a partial exemption situation as well.

Poodle

Wayneo157

Thanks Dean and Poodle for your replies,

This just seems to get more and more complicated to me!

Dean,

The holiday lets on their own will be under the limit, but when added to the other activities then they might be over the limit.

Poodle,

Thanks for that and I think the partial exemption will not be a problem.


If the total standard rated income is below the registration threshold then there will not be a problem.

If the holiday lets part of the income from the cottage added together with their other income from the farm takes them over the limit would there be a problem in setting up the cottage as a separate business for VAT purposes or in your experience will HMRC want to classify all the income as one business? :huh:

Regards

Wayne

Dean

Wayne, you could set it up as a separate business by putting it in sole spouse names.... the danager her is you loose the CGT PAs for the property being held in joint names and there also IHT issues to consider.

I think I would opt for administering VAT...

Regards

Dean

Wayneo157

Thanks Dean,

I agree with you I think the least complicated way is to opt for VAT registration if they exceed the limit. I think I need to have a long discussion with my clients and talk through all the options.

Thanks again for all your help. :thumbup1:

Regards

Wayne