We have seen a boom in the number of people purchasing a second property in the UK, with government figures suggesting that the total number of second homes has risen by 30% over the past five years.
Throughout this year, we have experienced an upsurge in the number of people purchasing a second property. This was mostly driven by the Stamp Duty holiday earlier in the year, with activity in the general housing market increasing, as people look to benefit from the tax break outlined in the Budget 2021. However, owning a second home can affect the amount of tax you need to pay out on the properties generated income.
With the rise in new second homeowners, it has never been more important to understand the tax breaks available when owning a second home, as well as how to take advantage of these. By speaking to a financial adviser, you can ensure that you are making the best decisions for reducing your tax outgoings.
What tax am I liable for as a second homeowner?
Depending on how your second home is used, it can impact the amount of tax you need to pay. Whether for personal use, or with the intention of renting – either as a short-term holiday let or renting to long-term tenants – you need to know which exemptions you can benefit from.
What exemptions does a furnished holiday let (FHL) receive?
Homes that are classed as a furnished holiday let can benefit from several extra tax breaks through deducting expenses.
Expenses that can be deducted include:
- The cost of furnishing the property
- Mortgage interest charges
You can also use the income from FHLs to contribute towards your pension. However, if your second home doesn’t qualify as a furnished holiday let, you will not be able to use the tax benefit, as it is not permitted for income from a buy-to-let property.
Does my property qualify as a furnished holiday let (FHL)?
For your property to qualify as a furnished holiday let, it must be available for letting at a commercial rate for at least 210 days a year. However, this must not normally be let to the same person for a period of more than 31 days in the tax year.
When renting out a second property, we advise always seeking specialist tax advice, to help guarantee that you are utilising all available exemptions.
Remember: tax laws can always change, so having a personal financial adviser can help ensure you are always up to date with changes that may impact you.
KLO Financial Services
At KLO Financial Services, our expert financial advisers offer independent financial advice to our clients. We can support with a range of services including tax efficient planning (such as utilising exemptions for furnished holiday let properties), personal financial management and inheritance tax planning. We even offer business solutions that support even our most vulnerable clients.
If you need support with financial planning, our experts would be happy to help find the best solution for you or your business. Get in touch today on 0121 7264720!