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2017 Budget & Tax Round up

Written by Simon Tolson on

Little in the budget to affect holiday home owners but plenty of changes for 2017 to consider

During my somewhat chequered academic career I was frequently found doing an all nighter before an essay was due in or more likely watching something on the TV that I had no interest in the day before an exam.  35 years later things have changed and I’m a responsible business executive so as usual I’m writing this 2 hours before the print deadline having promised our long suffering editor that I really am working on it.  My excuse for this edition was that it’s budget week and I always put out an analysis for holiday home owners.  Don’t worry John there is always lots to write about and I’ll get onto it as soon as the Chancellor sits down.

As it turns out there is very little in the announcements of direct relevance to holiday home owners.  I could stretch a point and talk about the increase in National Insurance for the self employed but there’s none to pay on holiday let income unless it is your main business.  We could also talk about the cuts in dividend tax relief & corporation tax for people like me running a limited company but again this is not relevant to the vast majority of holiday home owners.  Incidentally despite the tabloid headlines about builders being robbed this morning there is much exaggeration as Class 2 NI contributions are being abolished and for limited company owners the corporation tax reduction will offset the loss of dividend relief in most cases and further reductions are already promised between now and 2020.  (That’s a pledge so there’s no going back on it!)

There are, however, policy decisions announced previously that are either in process or taking effect from this April that are relevant to property owners.

Business Rates Revaluation

This has been a particularly drawn out affair with a delay in the normal 5 year cycle. We’ve seen shouty tabloid headlines about businesses being ruined and Simon’s award for most misleading headline of the year must go to the Daily Mail with ‘Your Holiday to Cost More After Business Rate Hike’.

As usual I must just repeat my lecture- you should not be paying council tax if you run a holiday let.  You should be registered for business rates and in most cases claim small business rate relief of 100% and pay nothing.  This relief was temporary but has been made permanent from this year (until they change it of course).  ‘Your Holiday to Remain Cheaper After Massive Tax Relief Scheme Made Permanent’ would be an equally stupid but more accurate headline but I’d imagine it would sell less papers.

As the revaluations have come in for the properties we manage we haven’t seen any dramatic changes and given that for most owners the change is from paying nothing to paying nothing there’s little to get worked up owner.  The council seems to have worked things out by creating a valuation according to location and number of bedrooms with all the 2 beds in each town getting the same valuation.  There are anomalies, for instance Mousehole is rated higher than Porthleven and it doesn’t fit the brief of being a multiple of the rental value of the floor area but to be honest it’s probably as fair a system as any.

Restriction of Mortgage Interest Relief For Higher Rate Tax Payers

The spin on this announcement was that it was the removal of a generous relief. I’m surprised more fuss hasn’t been made as I think that the buy to let restriction crosses a very fundamental line in the sand.  Throughout the years that I worked in the finance industry there was a simple answer for clients bemoaning a large tax bill- if you owe the tax you must have earned the money.  This will not be true in future for buy to let landlords and so for the first time in generations we have a ‘dry’ tax in the system that is buy to let landlords may have to pay tax on profit that they have not made.

Fortunately this measure does not apply to holiday lets so take a breath!

Capital Gains Tax on Residential Property

Your main residence is exempt from CGT of course but residential property has a surcharge so the rate paid will normally be 28% rather than the 20% for other assets.

Once again take a breath as holiday lets qualify for entrepreneurs relief and pay CGT at 10%

Time To Reconsider If You Don’t Rent Out Your Second Home?

Now I’m far from unbiased on this but if you lock up and leave your second home maybe it’s time to reconsider and add up just how much it is costing you to keep out 15 or 20 bookings a year?  As well as losing the substantial rental income, you are paying council tax, paying the mortgage and face a capital gains tax bill on disposal that will be almost tripled.

If you don’t care about the money then there’s also the work created both for those directly involved in marketing and maintaining the property and indirectly supporting vital local businesses & services used by guests.

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