Taxation of holiday accommodation

As part of their diversification plans, farms might consider providing camping or glamping facilities and the provision of holiday accommodation in existing buildings and cottages, but have you also considered the taxation of holiday accommodation?

Unless a significant number of other services are provided (so the activity is similar to a B&B or hotel accommodation) then it is likely that for taxation purposes, it will be treated as a rental activity rather than a trade.

If the property and rental activity is undertaken by individuals, then the treatment as a rental activity (as opposed to a trade) could restrict the use of any loss claims and the availability of reliefs for Capital Gains Tax.

Furnished Holiday Accommodation

Historically, qualifying as furnished holiday accommodation provided a number of taxation advantages. However, many of the advantages were removed in 2011.

The remaining taxation advantages of a property qualifying as furnished holiday accommodation over normal letting of property are as follows:

• Profits are treated as earnings for pension purposes.
• The following CGT reliefs are available – rollover relief, gift relief, relief for loans to traders and Business Asset Disposal Relief.

To qualify as furnished holiday accommodation:

• The accommodation must be furnished and let on a commercial basis.
• The accommodation must be available for letting to the public generally for at least 210 days in a tax year;
• It must actually have been let for periods totalling at least 105 days and;
• It must not normally be let for longer term occupation (being over 31 days) and any periods of occupation must not exceed 155 days.

Averaging can be used when the owner has more than one property and a period of grace can apply if the property has qualified as a furnished holiday let in a period but not in a following period.

VAT

Accommodation which is let out as suitable for holiday or leisure use will always potentially be subject to VAT and the business will have to register once the turnover threshold is met (or may already be VAT registered if operating other business activities).

If you would like any additional guidance or advice when considering the taxation of holiday accommodation, please get in touch and we will be happy to assist.