Tax relief on residential let property
Nov 13, 2019
If you let a property which is lived in as a ‘dwelling’ rather than being used for commercial purposes, there is generally no capital allowance tax relief available if you choose to spend money on equipment in that property.
In a recent Tax Tribunal case it was decided that only equipment installed in the ‘common parts’ of a dwelling house qualifies for capital allowance tax relief. This would typically comprise a common entrance lobby, corridors, stairs or lifts and those parts of the building which do not provide any living facilities.
Bear in mind too, that the new Structures and Buildings Allowance is not available in relation to ‘dwellings’, nor to structures in the garden such as a garden office.
Furnished holiday lettings
A major exception to this rule is where the property qualifies as a furnished holiday letting, and where the business is treated as a trade. In this instance, assets such as beds, sofas, televisions and white goods would qualify for capital allowance tax relief, as they would be classed as equipment used in a business.
Where the business incurs finance costs such as mortgage interest, it’s also worth taking into account that the restriction which applies to other residential property businesses doesn’t apply to furnished holiday lettings.
Capital gains tax relief
Another point of note is that qualifying furnished holiday lettings businesses are eligible for a number of important reliefs from capital gains tax. One of these is called ‘rollover’ relief, which would apply where the proceeds from the sale of a property are reinvested in another qualifying asset. It’s also possible to claim ‘holdover’ relief on the gift of the whole, or part of, a property business. Bear in mind too that entrepreneurs’ relief would be available on the disposal of a furnished holiday lettings business.
As mentioned in a previous newsletter the Office of Tax Simplification have recommended that furnished holiday lettings businesses should qualify for inheritance tax (IHT) business property relief which, if legislated, should mean no IHT is payable when the business is passed on during lifetime or on death.
If you have any queries about tax reliefs available on your residential property lettings, then please get in touch with the PT team and we’ll be happy to help.