Holiday lets

[Agrivator]

We have bought an adjacent house, and it has been available for holiday lets since the start of the year.

The holiday let is part of the farm business, but no VAT is charged on the rent, and as a consequence, no VAT is reclaimed on running costs.

But in addition to the purchase price, there has been considerable expenditure (about £30k) on capital improvements, such as new radiators, roofing repairs, new bathrooms, new doors, new flooring, electric upgrades etc.

Our accountant says these capital improvements are regarded as part of the purchase price, and are not allowed as expenses to be offset against rental income.

My queries are:

1. To what extent can we reclaim the VAT paid on these capital improvements? So far, we have not reclaimed any of it?

2. Is there any possibility that the annual 3% ? tax allowance can be reclaimed on part or all of the capital expenditure?

 

[quavers]

I was advised that a vat reg, business has to pay vat on holiday let income , holiday rents are looked at differently from residential lets .

 

[stewart]

If your accountant has advised that capital improvements are to be regarded as part of the purchase price I would also take his advise on the amount of VAT you can claim. It will be no defence to say a TFFer told you it was ok to claim VAT in the event of an investigation by HMRC.

 

[Bob the beef]

If the holiday let is part of the business you have to charge vat. But conversely you can reclaim all the vat on the improvements. Lot of people on leader grant schemes got caught up in this problem. Unaware that they were going to have to give 20% of the takings to HMRC

 

[Hilly]

You have to charge vat .

 

[yellow belly]

capital improvements is capital expenditure and charged against a future capital gain
repairs and maintainance should be an expence against income separate each job on the invoice

 

[Woolless]

We were advised by our accountant to setup the holiday let as a separate business to avoid paying VAT on the income. As a consequence, no VAT reclaimable on the initial expenditure or ongoing expenses but fag packet calculations pointed us clearly in this direction.
All academic at the moment of course, as we opened for bookings late March

 

[FIL46]

I rent out industrail building's and changed over to charging vat years ago, was losing out on too much money when doing maintance Get a second account to look over it, just had a google and the big chain hotels charge vat, your 30k improvment just handed 5k to the vat man you could have done more stuff with that 5k.

 

[Gone Shooting]

We have two glamping pods with hot tubs - just paid all the vat back as guests will not want vat added - bit of a bugger ! Have now set up a LTD company incorporating the livery business and the four of us as directors. Probably reduce the farm tax bill as well - anyone fancy a break plus coarse fishing look up Aconbury pods and a deal

 

[quavers]

We were advised by our accountant to setup the holiday let as a separate business to avoid paying VAT on the income. As a consequence, no VAT reclaimable on the initial expenditure or ongoing expenses but fag packet calculations pointed us clearly in this direction.
All academic at the moment of course, as we opened for bookings late March

How did you go about this , was the property on the owned already , or did you buy it for letting purposes , i built mine for residential let then the market fell around here with the oil , so went down the holiday route and when my account looked it to it advised that i would have to charge vat , not that easy to separate from the current business if you get a audit in the future

 

[Woolless]

How did you go about this , was the property on the owned already , or did you buy it for letting purposes , i built mine for residential let then the market fell around here with the oil , so went down the holiday route and when my account looked it to it advised that i would have to charge vat , not that easy to separate from the current business if you get a audit in the future

It's a self-contained annexe of the farmhouse which had living room, bedroom and bathroom, so we replaced a utility room with a kitchen. It's all done in my wife's name.

 

[Mur Huwcun]

We were advised by our accountant to setup the holiday let as a separate business to avoid paying VAT on the income. As a consequence, no VAT reclaimable on the initial expenditure or ongoing expenses but fag packet calculations pointed us clearly in this direction.
All academic at the moment of course, as we opened for bookings late March

Can the farm not let the units to the letting company plus vat, but then the letting company is not vat registered therefore does not claim it but absorbs it. All expenditures etc therefore would be going through the vat registered company but as the letting company are not vat registered it’s their (yours) loss!!!

 

[Woolless]

Can the farm not let the units to the letting company plus vat, but then the letting company is not vat registered therefore does not claim it but absorbs it. All expenditures etc therefore would be going through the vat registered company but as the letting company are not vat registered it’s their (yours) loss!!!

Clever thinking. I wonder what the accountant would make of it? Or the taxman for that matter?

 

[Bob the beef]

We looked at a scheme like that but the accountant was dead against. He reckons hmrc are very tight on holiday lets last couple of years. Basically told us we would be on our own if we had an inspection

 

[Mur Huwcun]

Clever thinking. I wonder what the accountant would make of it? Or the taxman for that matter?

It’s very similar to what a lot of accountants do regarding setting up different companies anyhow! No way would it be that easy though!

 

[quavers]

It's a self-contained annexe of the farmhouse which had living room, bedroom and bathroom, so we replaced a utility room with a kitchen. It's all done in my wife's name.

Is the farm house in your wifes name ? i also thought of putting the holiday let in my wifes name but if i had a inspection the paper trail would lead back to the farm .

 

[Chris F]

capital improvements is capital expenditure and charged against a future capital gain
repairs and maintainance should be an expence against income separate each job on the invoice

That's what I did. The capital was saved up and came off my capital gains tax bill.

 

[Woolless]

Is the farm house in your wifes name ? i also thought of putting the holiday let in my wifes name but if i had a inspection the paper trail would lead back to the farm .

No in joint names.

 

[D14]

We have bought an adjacent house, and it has been available for holiday lets since the start of the year.

The holiday let is part of the farm business, but no VAT is charged on the rent, and as a consequence, no VAT is reclaimed on running costs.

But in addition to the purchase price, there has been considerable expenditure (about £30k) on capital improvements, such as new radiators, roofing repairs, new bathrooms, new doors, new flooring, electric upgrades etc.

Our accountant says these capital improvements are regarded as part of the purchase price, and are not allowed as expenses to be offset against rental income.

My queries are:

1. To what extent can we reclaim the VAT paid on these capital improvements? So far, we have not reclaimed any of it?

2. Is there any possibility that the annual 3% ? tax allowance can be reclaimed on part or all of the capital expenditure?

If you want to reclaim vat on the materials used for the conversion you’ll have to charge vat on the rent. Same as a farm building converted to rent out. You can opt to vat at a later date if necessary.

 

[Muddyroads]

We consider our self catering annex as vatable. Accountant advised that HMRC can get funny unless it can clearly be demonstrated that there is absolutely no crossover with the farm, even down to using the same laptop for record keeping etc. Claim all vat back on inputs, have to pay it on income, which hurts a bit. Rented farm, so capital input has to be looked at differently to an owned farm.