Tax changes for Furnished Holiday Lets (FHLs) ‒ What you need to know

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Earlier in the year, HM Treasury published a number of reviews and proposals relating to tax policy, dubbed “Tax Day”, aimed at creating a more modern and open tax system in the UK.

One such review likely to concern landlords and property owners was around the tax and allowances of Furnished Holiday Lets (FHLs). These policy changes are a reaction to the increasing number of homeowners using sites like Airbnb to make additional income on their homes.

Owners of FHLs receive a number of tax reliefs and allowances, providing that they meet the criteria set by the government. For example, properties that qualify as a FHL are subject to business rates instead of council tax. Business rates are cheaper, as they are deemed to be commercial premises, and the majority of FHLs are also viable for small business rates relief. This means that you could end up paying no rates at all.

While this is great for FHL owners, it does, unfortunately, mean that many homeowners try to claim their property as a FHL, even if they don’t meet the criteria to benefit from the relief.

Up until now, FHL owners have not been required to prove that they meet these requirements. However, with the number of homeowners claiming FHL tax benefits increasing, HMRC will be asking owners to prove that their property qualifies as a FHL.

To qualify as a FHL, your property must be:

• Based in the UK or in the European Economic Area (EEA) – including Iceland, Liechtenstein and Norway. All FHL properties in the UK will be treated as one business and all FHL properties in the EEA will be treated as another.
• Furnished – your property must include sufficient furniture for normal occupation, such as beds, sofas and white goods.
• Commercially let, i.e. you must intend to make a profit from the rental. Letting a property out of season to cover costs still counts as a commercial let, even if you did not make a profit

As well as the property conditions, there are also three key occupancy conditions that must all be met in order to qualify as a FHL.

1. Availability ‒ Your property must be available as a FHL for at least 210 days in a year. You cannot count any days that you live in the property.
2. Letting ‒ You must let out the property as a FHL for at least 105 days in the year. You cannot count any days that friends or relatives stay in the property for free or for a reduced rate.
3. You also cannot count any lets of more than 31 continuous days. The exception to this would be if something unforeseen happens, such as the holidaymaker either falling ill or having an accident that delays their departure, or they have to extend their holiday due to a delayed flight.
4. Pattern of occupation

There is a bit more wiggle room on the 31 day limit. If the total FHL bookings exceeding 31 continuous days is less than 155 days during the year, your property still qualifies as a FHL.

If you don’t end up letting your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold:

• Averaging election – if you have more than one property and, between them, they average out to over 105 days of commercial let. You get a bit of time to make your averaging election ‒ one year from the 31st of January following the tax year. It sounds complicated but, essentially, you can make an averaging election for your 2017/18 tax year up until January 31st 2020.
• Period of grace election – if you intended to let out your property as a FHL but did not reach 105 days occupancy, HMRC will accept proof that there had been a pattern of FHL activity by looking at previous years, for example.

Broadly speaking, if your property is furnished, vacant and advertised as a holiday let for seven months of the year and you let it out for at least three months, it should qualify as a FHL and be eligible for certain tax reductions and allowances.

While it’s currently unclear how HMRC will be checking that eligibility requirements have been met, it is important to check whether your property qualifies as a FHL and to collect any and all evidence to prove that this is the case. It seems likely that, with the introduction of MTD, you will be required to upload evidence to a digital platform in the near future.

What are the tax benefits of FHLs?

As well as paying business tax rates rather than council tax, FHL owners benefit from being able to:

• Claim capital allowances on your property, meaning you can furnish it and deduct the cost from your pre-tax profits.
• Classify income generated from a FHL property as “relevant earnings” for pension purposes.
• Split FHL profits equally between yourself and your spouse flexibly for tax purposes – unlike with long-term rental properties where profits are divided based on the official ownership split.
• Claim certain Capital Gains Tax reliefs when you sell the property, e.g. Business Asset Rollover Relief.

What FHL owners should do now

If you are thinking of buying a property or using a property as a FHL, you should make a clear distinction between your residential or commercial lettings and begin gathering evidence as you go.

As well as gathering evidence that your property qualifies as a FHL, you should keep good records relating to your FHL property and the income received. By using a platform like APARI that is tailored to the needs of landlords, you can keep up-to-date digital records of your income, expenses and relevant documents preparing you for both the coming evidence requirements as well as MTD.

For all the latest information, join the APARI Community here.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Tax changes for Furnished Holiday Lets (FHLs) ‒ What you need to know | LandlordZONE.

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EXCLUSIVE: Time for radical action to rid sector of rogue agents, says property chief

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The boss of a Midlands estate agency and property services firm has come up with a radical new idea to address council inaction over rogue landlords and poor housing standards.

He reckons a new landlord licensing scheme similar to Wales’ scheme but with fit and proper persons checks along with a three-year property MOT would rid the sector of most unsafe properties and generate millions in additional local authority revenue for social housing and vital repairs.

The agency MD, who wants to remain anonymous for fear of a potential backlash, says the check would cost £250 annually. He tells LandlordZONE: “Although a similar check is currently done to get an HMO licence, it only covers the building, not the person, and there’s nothing at all for standard residential properties.” 

His idea was sparked by two local cases, one where a landlord running an HMO was jailed for concealing cameras in his property and filming students but is now back running HMOs, while the other concerned a rented property where the ceilings were caving in for three years before the council took action.

Property MOT

“There should also be a property MOT check on everything including the electrics,” he says. “At the moment not all landlords get this done and there’s no one actually monitoring it – it’s just done on trust. This would cost £300 every three years per property and would cover a council inspection and admin to record electrical and gas safety certificates.”

He believes that if landlords were licenced and registered along with their properties, it would give local authorities the ability to enforce legislation, rather than hoping they might catch landlords out once tenants have moved in.

However, his local council has dismissed the idea and were more concerned in protecting private property rights. Unsurprisingly, local landlords weren’t keen either but he adds: “I think it has potential – I’m hoping someone else might take up the idea.”

Read more: Why selective licensing doesn’t work.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – EXCLUSIVE: Time for radical action to rid sector of rogue agents, says property chief | LandlordZONE.

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LATEST: Average house price rises £15k in a year to record high

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Average house prices have hit a new record high of £238,831, up £15,916 over the past 12 months, says Nationwide.

It reports that annual house price growth rebounded to 7.1% in April from 5.7% in March, with prices up 2.1% month-on-month – the biggest monthly rise since February 2004.

But its research found that although the stamp duty holiday reaccelerated prices, it isn’t the biggest motivator for house buyers; of those who were either moving home or considering a move this month, three quarters said this would have been the case even if the stamp duty holiday hadn’t been extended.

Nationwide believes housing market activity is likely to remain fairly buoyant over the next six months as a result of the stamp duty extension, along with low borrowing costs and a change in housing needs following the pandemic.

Chief economist Robert Gardner (pictured, below) says that with the stock of homes on the market relatively constrained, there is scope for annual house price growth to accelerate.

He adds: “If house prices remain flat in month-on-month terms over the next two months, the annual rate of growth will reach double digits in June.”

“If unemployment rises sharply towards the end of the year as most analysts expect, activity could slow, perhaps sharply,” says Gardner.

But at the end of April, 25% of homeowners surveyed by Nationwide said they were either in the process of moving or considering a move as a result of the pandemic, only slightly below the 28% recorded in September last year.

“Given that only around 5% of the housing stock typically changes hands in a given year, it only requires a relatively small proportion of people to follow through on this to have a material impact,” he adds.

Read more about house prices.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LATEST: Average house price rises £15k in a year to record high | LandlordZONE.

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BREAKING: Evictions paperwork must now include ‘breathing space’ scheme details

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The government has dropped another of its regular end-of-the-week private rental sector legal bombshells following a sudden alteration to the legislation underpinning Section 8 eviction notices

Both Landlords, agents and their solicitors will from Tuesday May 4th onwards have to include details of the governments recently-introduced ‘breathing space’ debt scheme within paperwork when seeking to gain possession of a property, or risk the eviction being rejected.

Announced last summer, the Debt Respite Scheme (Breathing Space) gives someone in problem debt the right to legal protections from their creditors for up to 60 days.

These regulations come into force on Tuesday, which is why housing minister Christopher Pincher has now inserted an amendment into The Assured Tenancies and Agricultural Occupancies (Forms) (Moratorium Debt) (Consequential Amendment) (England) Regulations 2021.

“Anyone who serves a notice using the incorrect template runs the risk of having their case thrown out on a technicality,” says Tim Frome of Landlord Action.

“With six-month notice periods in place at the moment this could be a very expensive mistake.

“This further highlights why landlords should use a Solicitors Regulation Authority regulated and authorised law firm such as Landlord Action to serve possession notices.”

Mike Morgan, Legal Division Manager at HF Assist, adds: “We have taken a number of calls on our HF Assist phone lines about the requirements set out in the Debt Respite Scheme regulations.

“The basic position is that if a tenant has a qualifying debt, such as rent arrears, they can see an FCA or local authority authorised debt advisor and apply for a debt moratorium.

“This gives them an eight-week breathing space from being chased for the amount owed while they work with the debt adviser to restructure their finances to pay their debts. The tenant should still pay their rent during this period.”

Read a free guide to the Breathing Space regulations.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – BREAKING: Evictions paperwork must now include ‘breathing space’ scheme details | LandlordZONE.

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House prices up 7.1% on April last year

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The Nationwide House price index is showing annual price growth increased to 7.1% in April, up from 5.7% in March with a new record high average house price of £238,831, up £15,916 over the last year.

Prices jumped 2.1% month-on-month which is the largest monthly rise since February 2004 and annual growth will reach double digits in June if prices are flat over the next two months.

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The Landlord law Virtual Conference 2021

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It has been one hell of a year for Landlords!  A year full of change – which landlords have had to keep up with or face penalties.

Not only have there been the changes which we expected –

The post The Landlord law Virtual Conference 2021 appeared first on Property118.

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Council policing of unsafe rented properties slammed as ‘weak or non-existent’

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Councils fail to serve improvement notices in three-quarters of cases where they find a Category 1 hazard, finds new research from Generation Rent.

The housing pressure group made Freedom of Information requests to 110 councils in England about their enforcement activity in 2019-20.

Of those that responded, 76 recorded 11,570 Category 1 hazards in private rented homes but only served 2,814 improvement notices, representing 24%. There has been no change since 2018-19, although it was up from 20% in 2017-18.

Generation Rent says this inaction leaves renters vulnerable to retaliatory eviction and makes it harder for them to claim back rent if their landlord fails to fix dangerous disrepair.

Dangerous rented homes

It is calling on councils to commit to serving improvement notices every time they find a dangerous private rented home, which it believes will help to drive out criminal landlords and improve standards.

Private renters already have little confidence in their council taking appropriate action, it adds.

In a poll of 1,008 private renters conducted by Survation, 35% said they would contact the council if their landlord had failed to fix something – but 44% would look for somewhere else to live.

Generation Rent wants councils to improve the way they communicate with local renters and raise awareness of their rights as well as widescale licensing schemes.

Director Alicia Kennedy (pictured) says that tenants move out with no council support and, because so many people are desperate for a home, the landlord has no difficulty in finding a replacement.

She adds: “Budgets are tight, and there’s no question the government must provide more funding to drive out criminal landlords. But there are councils already doing the right thing across the country and these local elections are a chance to elect councillors who will champion renters’ interests and adopt good practices to keep their homes safe.”

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EXCLUSIVE: Which landlords and properties make the most money

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Research released exclusive to LandlordZONE reveals which properties make the most money and how the pandemic has hit buy-to-let investors’ finances.

Specialist broker Paragon says its research shows that HMOs produce the greatest yields (7%) followed by flats (6.1%) and bungalows (5.9%), showing that the greater the risk, the higher the return.

Its MD for mortgages, Richard Rowntree, says the results are from his company’s survey of over 800 landlords of all types, which asked them to share their experiences of the differences between single property and smaller scale landlords with those managing larger portfolios.

Also, the larger a landlord’s portfolio, the higher the yield – those with portfolios of 20 properties or more produce an average yield of 6.7% while a single property on average produces 4.2%.

Paragon also asked landlords how Covid has impacted their businesses. Just over a third said they had experienced problems in general following Covid including but not exclusively rent arrears.

Specifically, reduced income has been experienced the most by larger portfolio landlords (see below).

For example, while 36% of one-unit landlords reported significant (17%) or slight (19%) income reductions, 57% of those with 20+ properties reported an income reduction including 24% with ‘significant’ and 33% with ‘slight’.

Away from Covid, the report also reveals that terraced houses are the most popular buy-to-let property across all portfolio sizes, followed by flats, semis and HMOs.

“Although there are various reasons why people operate rental businesses, for many, the primary reason is as a source of income,” says a Paragon spokesperson tells LandlordZONE.

“This means that assessing profitability is one of the most important and obvious ways to gauge how successful a portfolio is.

“Our research shows that larger portfolios enable landlords to invest in a wider range of property types and target those that generate the best yields.”

Pic credit: Nenad Stojkovic | Flickr

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EXCLUSIVE: Landlord and managing agent in ‘right to manage’ battle

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A campaigning landlord and a managing agent are embroiled in an ugly spat over the right to manage their apartment building in Manchester.

Frustrated landlord Philip Crawford, who has been interviewed on national TV about property management issues, claims tenants are at risk after Edge Property Management – also the freeholder – withheld the fire risk assessment on two adjacent properties in Athol Road (pictured), which Edge strongly denies.

He says seven of the 10 flat owners are landlord investors – all of whom have backed a bid to take on the right to manage – and that the firm deliberately split the building into two so that the attempt would be unsuccessful.

Edge MD Phil Green tells LandlordZONE that it is under no obligation to share the fire risk assessment. He says none of the recommendations were ‘category one’ and that it will carry out works identified when the statutory notice period has expired.

Right to manage

Green points out that The Property Ombudsman rejected Crawford’s claim for the right to manage while he also lost his case for management at the First Tier Tribunal.

He adds: “Mr Crawford has an agenda which consists of buying flats and causing disruption and attacking the landlord or managing agents with a view to gaining the management of the site as part of his own income.”

Crawford (pictured) commissioned his own fire risk assessment in April, and says this found that the building wasn’t safe. It discovered combustible back boards, wet basement walls, no RCD protection, and unsafe and out of date fire alarm fuses.

Crawford tells LandlordZONE: “One woman’s flat has been damp for 18 months yet she still pays a very high service charge. It’s now impossible to sell the flats as once a potential buyer finds out about these problems they pull out.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – EXCLUSIVE: Landlord and managing agent in ‘right to manage’ battle | LandlordZONE.

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DEBATE: Should landlords chase rent arrears when Covid ends?

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Many landlords will soon find themselves in the unfortunate position of having to sue for rent when restrictions end – here’s how to go about it.

How can you recover rent owning when the tenant is refusing to pay? Yes, the government has provided measures to protect tenants during the pandemic, but as we come out of that, rent owning is still due.

If landlords want to forgive outstanding amounts or reduce the amount due as a matter of goodwill, that is up to their own discretion, but as far as the law is concerned, the total contracted amount owing is due in full.

Some landlords will decide to pursue their tenants for the money owned to them, many have mortgages to pay and it is not likely that their mortgage lenders will forgive them their payments.

For small-scale private landlords the rent is often a crucial element of their own income. There is no legal obligation on the private landlord to negotiate any form of rent reduction or early release from the tenancy agreement.

Questions to ask yourself before you sue

The first question is, can your tenant afford to pay? Suing someone who can’t pay or is unlikely to be in a position to pay in the future is futile, a complete waste of your own time and money.

Those on state aid, students, especially those from abroad are likely to be difficult, so think hard and long before pursuing these people.

If the tenant has left you, do you have a postal address where they are settled? You can’t pursue a claim otherwise; if they are on the move, you can’t pursue a moving target through the courts, and if they live abroad, it’s even more difficult, you might as well forget it.

Do they have a reputation to maintain? If tenants want to rent again, they will need a clean credit record, otherwise they will very likely get turned down for tenancies. If they are professional people they will not want a county court judgement on their CV, so you need to remind them of these facts.

Suing someone and successfully getting a county court judgement (CCJ) may give you some satisfaction, and that may be enough for some, but it does take time and money to proceed – sometimes its just best to put the loss down to experience and claim it against you tax liability.

Follow the practice guidelines

If your tenant is still with you, you may decide to go for eviction on the rent arrears ground and attached the amount of rent arrears to the claim (Section 8 of the Housing Act 1988), or simply sue for the arrears, whether the tenant is resident or not.

However, before such drastic action you should consider mediation, which allows an independent third-party to assist those involved in a dispute to try to reach a mutually acceptable agreement to resolve their differences. There are also other sources of financial help that tenants can be alerted to.

The starting point is to read the pre-action protocols  for rent arrears and evictions. The key thing is trying to negotiate with your tenants and giving them ample notice in writing, of your intentions. Write to them and give them time to pay, set up a schedule of re-payments if you can and remind them of the above points.

If that fails, write a letter before action giving them at least 14 days’ notice of your intention to claim and setting out the details of your claim, or serve a section 8 notice.

Should I use Money Claim Online?

The internet portal operated by HM Courts & Tribunal Service known as Money Claim Online is a convenient way to start off and pursue a claim. The Small Claims Court (or County Court) offers a convenient and relatively informal way for the man in the street to pursue debtors.

You can claim up to £100,000, but more commonly claims up to £10,000 are pursued on what is known as the “small claims track”. Legal professional’s costs cannot be recovered, so most people do not use a solicitor for this, but the court fee can be recovered if the claim is successful, plus the judge will usually allow reasonable expenses.

How do I progress my claim?

Keep it simple and concise. State your claim on the forms simply as rent arrears, setting out what and when it is due and answer the other questions of the on-line forms

If the other side puts up a defence, answer that in a simple straightforward manner, stick to the facts, the judge will not be impressed if you try to answer or stray into a load of emotional justification.

At the court hearing, present you case clearly and concisely and with courtesy, whatever the defendant may say.

Read more about mediation.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – DEBATE: Should landlords chase rent arrears when Covid ends? | LandlordZONE.

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