Another consideration for advisers and landlords alike will be the impact upon relevant earnings. With no change in circumstances, some individuals’ retirement provision plans may be in serious jeopardy.
It is certainly not the case that previous plans can be relied upon, and new pension provision strategies should be considered for anyone with FHLs in their portfolio.
One point to bear in mind is that this change is a removal of a simplified system of reliefs, but not a bar on these properties qualifying as trades in their own right. Many will operate their holiday let portfolios in a highly commercial fashion that may qualify as a trade in any case.
After all, there are many similarities with such businesses and that of a hotel or holiday park where trading status would rarely be in question, opening up all of the same reliefs above (and more). If that is a possibility, the importance of professional advice cannot be stressed enough here.
This is a highly subjective area and HMRC are likely to take a strong stance on such claims – just look at the string of inheritance tax cases on holiday lets to see how many of these trading cases are refused. Even so, for truly trading enterprises, this possibility should not be discounted.
Planning strategies
So, what options do we have if we know we have FHLs in a portfolio that will no longer qualify for beneficial treatment?
One of the first considerations must be to consider if the property sits in the right place. With the reliefs available for the next half a year or so, there is still the possibility to tax-efficiently move properties around the family while deferring a resulting tax liability until an actual sale.
This will not be suitable for everyone, and advice is always needed in considering such transfers, but there is a closing window of opportunity here that can still be used.
If the properties are in the right place, and about to fall within an overall letting portfolio, another consideration should be incorporating the rental business into a limited company.
The gradual penalisation of residential landlords through the taxation system over recent years has encouraged many landlords to consider moving their property portfolios into a company. This can allow the benefit of a full deduction for loan interest, as well as opening up more possibilities for pension contributions through the company.
If done correctly, this may be achievable tax-free, however incorporating a property portfolio is not a project to be undertaken on the cheap. The price of sound advice to ensure this is correctly planned and implemented will far outweigh the tax cost if it is not done right.
