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Do I have to pay tax on holiday home income when letting my property?

One of the questions we often get asked by holiday home owners is what taxes you have to pay and when. It’s often easy to overlook, especially if you’re new to letting, because we think of it as a private home. In reality, when you start letting, it becomes a form of business and depending on your income level, that can affect your tax position.  

Five bedroom holiday home (sleeps 10) near Salcombe

Here are three of the most common tax questions we get asked by holiday home owners: 

Do I have to pay council tax when letting my holiday home?

Yes! You do indeed have to pay your council tax. However, if you are letting your holiday home for 20 weeks (140 days) or more, then it should be registered for a business rate property tax rather than council tax.  When it comes to income tax, you have to pay Class 2 National Insurance if your profits are £6,515 a year or more and what you do counts as running a business.  

What income tax am I liable for?

On the topic of income tax, you have to pay Class 2 National Insurance if your profits are £6,515 a year or more and what you do counts as running a business. In essence, any rental income from a holiday let is subject to income tax and will have to be declared on your annual tax return. Obviously the detailed impact of this will also relate to your wider income, but this gives you an idea of what to expect. You should also be mindful of your income when it comes to VAT. 

Do I have to pay VAT on my holiday home? 

It’s important to be aware that your property income may become eligible for VAT. Holiday lets are charged at the standard VAT rate of 20% if it breaks the VAT registration threshold, which is currently £85,000 in any 12 month period. If you’re not sure how to manage this or when you need to become VAT registered, speak to an accountant who will be able to guide you.  

In all things relating to finance and HMRC, it’s best to make sure you’re informed. We advise speaking to an accountant who can offer professional guidance in this area, including future considerations as your income increases. We are happy to point you in the right direction however, so feel free to ask our hosts for support at any time.

Read more about costs to consider when letting your holiday home to make sure you don’t get caught out.

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