Capital Gain Tax (CGT) Where the furnished holiday let conditions are met there are several CGT benefits as the property is effectively treated as a trading business. This means the property can benefit from relief such as Business Asset Disposal relief if it is sold. This gives a reduced CGT rate on any capital gain of 10%, compared to 18% for a basic rate taxpayer, and 28% for a higher rate taxpayer. There are other conditions around the ownership period of the property, and it must have been let as an FHL for two years prior to sale. The property can also benefit from holdover relief, which can be particularly beneficial when looking to pass assets to future generations without wanting to incur an immediate CGT liability. Holdover relief works by deferring the capital gain by effectively transferring the property at the owner’s base cost. This means that there is no immediate tax charge.
Whilst gifting a property and claiming holdover relief could form part of overall IHT (inheritance tax) planning, it is important for it to be considered in the context of your overall estate. Inheritance Tax (IHT) position Where a property is let as a furnished holiday let, it is often expected that Business Property Relief (BPR) will also follow. BPR can give relief up to 100% where the conditions are met and most commonly applies to trading businesses. Whilst FHLs are seen as a trading business for CGT this is not necessarily the case for IHT. To qualify for Business Property Relief, it is necessary to show that additional services are provided as part of the letting, so that activity is deemed to be more than an investment. Simply taking reservations, cleaning the property and carrying out general maintenance will not be sufficient. Additional services need to be undertaken, such as booking local restaurants, providing or arranging activities for guests during their stay.
This is not an exhaustive list, and each case must be considered on its own merits. It is clear from the cases that have been through court that the level at which additional services are deemed to be sufficient is high and will need to be carefully planned in order to satisfy HMRC (HM Revenue and Customs). Should BPR not be available, you may be exposed to IHT on the value of the property, which could land you with an unexpected IHT charge. Clearly, renting one of the properties on a farm can be lucrative in the short term, generating another income stream but careful consideration must be given to the overall structure and IHT planning for the farm before letting the business, or you could be left with a large future liability. If you are thinking of using your farm properties as holiday or furnished lets, get in touch with one of our tax advisers on 0330 058 6559 or email hello@scruttonbland.co.uk
AGRICULTURE AND FARMING | SCRUTTON BLAND | 7
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