VAT and Holiday Let Property

October 2006 Tax Newsletter

There are a number of well known tax advantages for the owners of UK furnished and let property that has been classified as a "Holiday Lets Property" by the Revenue. A major tax advantage is the treatment of rents received as trading income.

For example this would ensure that losses sustained in letting the property can be set off against other income, and that surplus rents count towards earnings for pension purposes.

There are, however, VAT considerations which should not be overlooked.

The letting of holiday accommodation is generally a standard rated supply. If the property owner is already registered for VAT as a sole trader, then such letting income will be subject to VAT.

If the property is owned jointly by a married couple or other partnership that is already VAT registered, then again relevant letting income will be subject to VAT.

If the property owners are not already registered for VAT, these gross rents received from all properties owned by the same person or partnership count toward the VAT registration limit - currently an annual turnover of £61,000.

If such rents, together with any taxable turnover from other business interests, exceed the threshold, the owner(s) will need to register for VAT and charge VAT at 17.5%.

It would be difficult to argue that the takings were not business income for VAT purposes, as this would involve claiming that this was not a business activity. Such a claim would certainly undermine the favourable tax treatment.