Letting Farm Properties as Holiday Lets With diversification of farms at the forefront of many farmers’ minds, it is common to look at the properties on a farm and consider whether these
can be let, particularly as a holiday let. With the upcoming development at Sizewell C it can reasonably be expected that there will be increasing demand for short stays for people involved with the project, which may well present lucrative opportunities for local farmers.
W hilst this presents a chance to generate a further income stream, there are several tax considerations to ensure the letting does not generate any future tax problems and that you maximise the reliefs available. Furnished Holiday lets (FHL) FHLs bring a number of tax benefits, but the starting point is to look at whether the letting of the property qualifies as an FHL.
If these requirements are not met, the property will be classed as an investment rental property and will not benefit from various tax reliefs below. Income Tax As you would expect, income arising from the property will be subject to income tax by the individual or entity (eg Partnership or Company) that owns the property. This is an important point to consider as assets can often be considered as partnership assets but may be owned personally by a partner or may be held in Trust. Any expenses incurred wholly and exclusively in relation to the letting can be deducted in calculating the profits, such as agent’s fees, insurance, heating and electricity costs. Once key area of difference between a FHL and an ordinary let property is that of finance costs, such as mortgage interest. For an FHL, the interest and any associated costs can be deducted in full when calculating the profits.
Ordinarily these are restricted to basic rate relief but for FHLs full relief is available, which can present a significant tax benefit, particularly where finance is required to renovate the property before letting. Capital allowances Capital Allowances can be claimed on the cost of furnishing the property, including white goods and furnishings, giving tax relief on the initial costs to furnish the property ready for letting. Pension As a side point, the income from a FHL qualifies as earnings for the purposes of pension contributions. Pension contributions cannot exceed your relevant earnings, and FHL income can therefore help top up your earnings to allow further pension contributions to be made (subject to annual allowances), which can be particularly helpful, for example if there is a bad harvest with poor income returns.
To qualify, it is necessary for the following conditions to be met:
• The property must be available for let for 210 days during the year.
• It must be let for 105 days (this excludes any lettings which last for longer than 30 days).
• The property must be furnished.
6 | SCRUTTON BLAND | AGRICULTURE AND FARMING
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