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Tax Implications on Rent to Serviced Accommodation in UK | R2SA

Published by UK Property Accountants
Published Date: August 17, 2023

The landscape of the real estate market in the United Kingdom has evolved significantly over the years, with innovative property investment strategies gaining popularity. One such strategy that has gained attraction in recent years is investing in serviced accommodation through the rent-to-serviced accommodation model.

This approach involves renting a property to provide short-term, fully furnished accommodation, often with hotel-like services. While this can be a lucrative venture, it's essential for investors to be aware of the tax implications associated with this unique property investment approach.

Understanding the Traditional Serviced Accommodation

Serviced Accommodation refers to furnished properties that are available for short-term stays, typically offered to travellers or individuals seeking a temporary place to stay.

These accommodations are owned by individuals and converted into service accommodations which often include amenities and services like those found in hotels, such as cleaning, concierge, and laundry services.

What Is the R2SA Business Model?

The Rent-to-Serviced Accommodation model involves renting a property from a landlord, furnishing it, and then letting it out on a short-term basis to guests. Investors can utilise online platforms and booking channels to attract guests and manage bookings effectively.

This model can offer higher rental yields compared to traditional long-term rentals, making it an attractive investment option.

Tax Implications for Rent to Serviced Accommodation

Investors engaging in the Rent-to-Serviced Accommodation model should be mindful of several key tax implications:

Tax Implications for Rent-to-Serviced Accommodation

1.

Income Tax

Income generated from serviced accommodation is generally considered Rental Income and is subject to income tax. This means that you will need to report the income on your Self-Assessment tax return.

It's important to keep detailed records of all income and expenses related to the property to accurately calculate your tax liability.

2.

Furnished Holiday Lettings (FHL) Tax Rules

In some cases, serviced accommodation properties can qualify as Furnished Holiday Lettings (FHL) for tax purposes. FHL properties have certain tax advantages, including the ability to offset certain expenses against rental income and the potential to claim Capital Gains Tax reliefs.

To qualify, the property must meet specific criteria, such as being available for short-term lettings for at least 210 days per year and being actually let for at least 105 days.

3.

Value Added Tax (VAT)

VAT Rent-to-Serviced Accommodation

If the annual turnover from your serviced accommodation business exceeds the VAT threshold (currently £85,000), you may need to register for VAT. This could have implications for the prices you charge and the amount of VAT you must account for.


Serviced Accommodation Rentals in the UK may fall under TOMS (Tour Operators Margin Scheme) if they offer services catering to travellers, and there's a question of significant modifications or additional processing following the recent Sonder tribunal ruling.

If the venture qualifies for TOMS, it's essential to assess whether the margin exceeds £85,000 before considering VAT registration.

4.

Capital Gains Tax (CGT)

When you decide to sell your serviced accommodation property, you may be subject to Capital Gains Tax on any profits on sale. However, if your property qualifies as an FHL, you may be eligible for certain reliefs like Business Asset Disposal Relief and Roll-over-relief that could reduce your CGT liability.

5.

Business Rates

In some cases, properties used for serviced accommodation might be subject to business rates rather than the usual council tax. This can vary based on the specific local authority and the nature of the property's use.

6.

Capital Allowances

Capital Allowances on Rent to Serviced Accommodation

Owning an FHL property offers a significant advantage through the availability of Capital Allowances. Capital Allowances encompass a form of tax benefit that helps FHL landlords to subtract the expenses associated with designated assets, such as furniture, fittings, and equipment, from their assessable profits.

Summary

In conclusion, the rent-to-serviced accommodation model can be a rewarding investment strategy in the UK's dynamic property market. However, investors must be well-informed about the tax implications that come with this approach.

By understanding and properly managing these tax considerations, investors can maximise their returns while staying compliant with the UK's tax laws.

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