LEGAL CORNER
Tax breaks for holiday home owners – surely not? By Owen Hill, Consultant Solicitor In this fine part of the world –
there are lots of you. If you let your holiday home
you will be regarded by HMRC as carrying on a business and this
means that you are supposed to add the relevant income - less allowable expenses to the other numbers that go on your regular tax returns. If you are a tax payer because you have other income,
then please do not jump to the conclusion that this just means that you will pay more tax because the opposite may well be true. There is a long standing system of general allowances
that can be claimed in relation to the value of fixtures and fittings as immediate expenses to a business. so if you are a potential buyer or an existing owner of a holiday letting business, there may be an opportunity to offset an element of the cost of acquiring the property against the income tax you would otherwise pay on income from other sources. The allowances are primarily used in relation to
hotels, care homes and other industry operations but I am aware of one recent case where a genuine holiday
letting business was accepted by HMRC even though it involved the ownership of a single property sold by the former owners without any track record of holiday letting. The concept is that while the capital cost of the
building itself is not allowed against tax, the fair value of the ‘plant and machinery’ will qualify. In a recent case (not a million miles away from my office) a buyer of a holiday let property paid a modest £245K in total and persuaded HMRC that the value of allowable fixtures and fittings was just over £50K. The buyer was a higher rate tax payer and allowed this cost against other income during the tax year so the net saving was a cool £20K. I sense that HMRC are slightly uneasy about the
concept of second homes getting what might appear to be an easy time – so there are rules. A genuine holiday letting effort is regarded as available to let for more than 210 days each year, not let to anyone for more than 31 days during the year and actually let for 105 days. seems a bit unnecessarily tough to exclude long winter letting but 105 days is only 15 weeks. When was the last time HMRC sent you a cheque?
Pre-empting problems with stepchildren
By Marinella Hollies, Associate Solicitor In 1970 a fifth of marriages
broke down before the fifteenth anniversary, which increased to one in three according to 2010 figures from the Office for
national statistics. These breakdowns create complex separated families with differing interests and quite often, underlying resentments. All of this can cause estate planning problems. never has it been more important to have an up to date Will. I regularly encounter clients who have remarried but
have their own children from a previous marriage. They want to be certain that ultimately, their assets go to their own children but at the same time, they need to make adequate provision for their new spouse. How often has a client told me that he is certain that his new wife would make provision for his children after his death. In that situation, I often have to highlight what could go wrong. There are various ways in which the interests of all the parties can be taken into account. One option can be a life interest trust for the spouse. Capital can be preserved by the trustees for the client’s own children on the spouse’s death. If the client wants his children to have some assets before then, that can be done but there may be Inheritance Tax consequences. Disputes with stepchildren can be another area where
problems can be pre-empted in a well drafted Will. Where it is a lengthy second marriage, stepchildren have more often than not been treated equally with a step parent’s own children and their expectation may well be that they would be treated equally in a new Will. Whilst there may be perfectly good reasons why the children are treated differently, it doesn’t prevent a step child who feels they have not been adequately provided for from claiming for a share of an estate or a greater share, by applying under the Inheritance (Family & Dependants) Act 1975. Court proceedings are inevitably both financially and emotionally expensive. If there are good reasons to treat the children
differently, and there often are, e.g. they may be likely to inherit from a grandparent, then it is always a good idea to leave a letter explaining those reasons to help the children understand why the Will has been drafted in the way it has been. Hopefully, it will mean that they will understand what you wanted to achieve and why, making it less likely that they will challenge that decision. It is never easy to consider the problems that can
arise within a family unit but it is important to do so when preparing your Will as this could avoid you unwittingly leaving greater problems for the whole family. Grateful acknowledgment to Fay Copeland of Wedlake Bell Solicitors for her agreement to use excerpts from her article in Private Client Adviser February 2014.
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