It is often said that the private-rented sector (PRS) and in particular housing provided by private residential landlords, represents the last genuine ‘cottage industry’ in Britain. Although in the view of the NLA a professional and responsible approach to letting property is essential there is no strict right or wrong way to plan your portfolio – leading to a great deal of diversity in the market place.
As anyone involved in the PRS will attest some landlords choose to incorporate and hold their properties as a limited company, some portfolios remain personally held, some as a partnership or any combination of the above.
There are pros and cons to all of these options and there is no one-size-fits all solution for the PRS.
However, irrespective of how you organise your portfolio if you let property by way of business – you are, de facto, running a business, which in our view means that you should be treated like a business so far as tax is concerned.
The problem is that the main asset of a landlord is residential property – which is a ‘non-business asset’ according to HMRC and therefore does not afford the same status as an asset held for almost any other type of business.
If landlords were able to define their properties as ‘business assets’ they would be able to release capital from underperforming properties when necessary and reinvest this back into their portfolio without falling foul of Capital Gains Tax (CGT) which they will inevitably pay again on the same gains at some point in the future. (Notwithstanding the dire need for wholesale reform of CGT to recognise long-term investment).
But, there is one area of letting property which is considered more ‘business-like’ than others in this respect.
If you own Furnished Holiday Lets there is a chance that you can take advantage of Capital Allowances to recover or mitigate tax.
These allowances can allow taxpayers to write off the cost of certain capital assets against taxable income or profits.
Any item within the fabric of the building that HMRC view as plant and equipment could be eligible for a claim. This includes a domestic setting and the items within it, such as central heating systems, bathroom equipment, kitchen equipment, plumbing equipment and electrical cabling.
It can be difficult to make a claim because Capital Allowances mixed up with some pretty complex legislation. So it can require specialist knowledge and skills to make an effective claim.
The benefits to the landlord can be very significant in terms of recovering tax paid from previous and for mitigating tax for future years.
So if you own a furnished holiday let, you might be eligible to make a claim.
Portal Tax Claims, approved suppliers of the NLA, and professional experts in this field has provided advice and support in the writing of this blog.
To find out more, visit http://www.landlords.org.uk/services/suppliers/portal-tax-claims or call William Marshall on 07966 522 567