Tax Advantages of Log Cabins | Log Cabin Holidays : Log Cabin Holidays

Wednesday, February 15, 2017

Tax Advantages of Log Cabins


Tax advantages of owning a holiday lodge as a buy to let.

Acquiring a holiday lodge or cabin, for the purposes of letting, could lead to a range of tax advantages.

The log cabin or holiday lodge must be let on a basis that falls within the HM Revenue and Customs (HMRC) initial requirement for a furnished holiday let, the following criteria must be met to achieve this definition.

  • 1. The cabin or lodge must be available for sommercial (commercial letting during the summer months) letting as holiday accommodation to the general public for at least 140 days of the year.
  • 2. The log cabin or holiday lodge must be fully furnished.
  • 3. The holiday lodge or log cabin must not be let to the same customer for more than 31 consecutive days in a year.
  • 4. You are required to have the lodge or cabin let for at least 70 of a year.
  • These rules often apply to tax year dates (starting in April) however if the cabin/lodge has not been let out in last tax year, the year then starts after the first day that the cabin is let on. This allows new business to begin even if they started 140 days after April.

    If the above rules are adhered to, then the lodge/cabin holiday let will considered as a trade and the following principle tax advantages will be aliped:

    Income Tax

    To determine the income from a furnished holiday letting business all the costs (except the cost of the actual cabin/lodge itself) are taken into account these are the costs of owning the letting business and include such things as agency fees, repairs and renewals, finance costs, maintenance costs, etc.

    Any losses that come from the letted property can then be offset against all the other general income from the same, or a previous, tax year put against any gains that come from the same year. If the loss rises in the four years that follow the starting of the business it can be taken back against the first three years that came before the period of loss. Any remaining loss can then be put forward against future profits that are gained from the business when you start letting again.

    Do be warned though, the HMRC can contend that you have not been letting your lodge/cabin on a commercial basis if they can find evidence of, for example, you letting the lodge/cabin to friends and family at a reduced rate or using the lodge/cabin yourself at peak times of the year. This can then lead to the business losses being disallowed.

    Capital Allowances

    Lodges built for BS3632 or BS EN 1647
    For the furnishings, white goods, furniture, etc that is in your lodge/cabin and also the machinery and plant that is use outside the property you will be entitled to Capital allowances. If the location of your property and structure meet the HMRC’s conditions to be considered as a caravan or mobile home, then capital allowances should also be allowed on the property itself. Your letting income is set against the capital allowances; this will determine the taxable result.

    Log cabins built to Building regulations or other

    For the furnishings, white goods, furniture, etc that is in your lodge/cabin and also the machinery and plant that is use outside the property you will be entitled to Capital allowances. There are no capital allowances however on the cost of the property itself. Your letting income is set against the capital allowances; this will determine the taxable result.

    SIPPS – Self Invested Pension Plan

    If your lodge/cabin is only not used by yourself or by friends and family, then it theoretically does meet the requirements to be part of a SIPP. Although SIPP providers are not readily available that would include the property, this is because if the HMRC was to class the lodge/cabin as taxable then they could possibly deregister the SIPP and enforce a 70% tax of the value of the property. As a result of this it is considered to high risk to include the property as part of a SIPP.

    Inheritance tax

    In order for the property to attract Business Property Relief from Inheritance Tax, two rules have to be met to be considered. As the owner or someone acting on your behalf you must involved with all aspects of the holiday makers and property, doing such tasks as, dealing with any complaints, maintenance, cleaning and laundry services and interviewing and advertising for new tenants. The cabin must also have been in use for two years as a letting business before the date of death to qualify for the Business Property Relief. If the property is however regarded as an investment by the HRMC then it will not be eligible for Business Property Relief.

    For further information visit www.hmrc.gov.uk/budget2009/furnished-hol-lets-1015.pdf

    Please note that the material contained on this website does not constitute advice and you should not rely on any material contained on this website to make any decision or take any action. We recommned everyone seeks the advice of a financial advisor before purchasing any lodge or holiday cabin for taxation advantages.