Your property – making the most of bricks and mortar
16 Let rooms in your own home to one or more lodgers.
Rent-a-room relief allows up to £7,500 of rent per property to be received tax free per year. The rooms must be let as residential accommodation in the home you live in, and no expenses can be claimed. If the gross rent is higher than £7,500, you need to declare the income on your tax return. However, you can then claim a deduction of £7,500 instead of the actual expenses incurred. Payments received under the Homes for Ukraine Scheme are not taxable and do not count towards the rent-a-room relief cap.
17 Let out your drive or garage for tax free cash.
The property income allowance allows you to receive up to £1,000 income tax free from property that doesn’t qualify for rent-a-room relief (see above). This could be from letting out spare space in your garage – or even your drive – for commuter parking. If the gross income before deduction of expenses is no more than £1,000 you don’t have to report the income on your tax return. If the rent received is more than £1,000, you can deduct the higher of £1,000 or the actual expenses incurred, paying tax on the net amount.
18 When you occupy a second home tell HMRC which of your properties should be treated as your main home for tax purposes.
A property that has always been your main home is free of CGT on sale or disposal. Any other property that you used as your main home for a period will be exempt from CGT for the time you lived there, and for any period for which you elected for it to be your main home. If a property has been your nominated main home at any time, the gain for the last nine months of ownership is exempt from CGT, even if you do not live there during that final period. You might not be able to nominate a property that is situated overseas.
19 Look at whether it is worthwhile continuing with a holiday letting.
All of the tax advantages enjoyed by furnished holiday lettings will be abolished from 6 April 2025, including being able to claim finance costs as a deductible expense – rather than these being restricted to a basic rate tax deduction.
You therefore need to decide if furnished holiday letting will still be worthwhile from 6 April 2025 onwards. Even without the tax advantages, a furnished holiday letting will often be more profitable than a traditional buy-to-let, although considerably more work is normally required. Anyone thinking of selling up might want to do so before 5 April 2025. A CGT rate of 10% could be available, and, if not, the higher residential rate for 2024/25 has been cut by 4% to 24%. There is no certainty where CGT rates are heading thereafter.
TIP
Despite the tax changes, furnished holiday accommodation can still be registered as a business, so it qualifies for small business rates relief. A property has to be let on a commercial basis for short-term lets for at least 70 days over the previous 12 months.
This publication is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The Financial Conduct Authority (FCA) does not regulate tax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services Compensation Scheme. This publication represents our understanding of the Finance
(No 2) Bill 2024, the Budget (Scotland) Act 2024 and law and HM Revenue & Customs practice as at 1 May 2024. All rights reserved.