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Opening a house or garden: top tax tips

02 Jun 2016

The summer season is the main income-generating period for many rural businesses that rely on visitors. For the owners of historic houses and gardens, there are many areas of potential contention that can be avoided when it comes to reporting to HM Revenue & Customs.
 

Opening a house and its grounds, if only for short periods, for weddings, tours or events, festivals or sporting events, provides a valuable income stream that can make a significant contribution towards upkeep, maintenance and repair.

However, where a property or gardens are only open for a limited number of days, there must be clear distinction between private and commercial use for tax purposes. There are a number of pitfalls for the unwary. 

The following issues need to be considered carefully:


Is public and private use clear-cut?

Expenses incurred for the purposes of the trade may be deducted from the income received to calculate the profit (or loss) of the business for tax purposes.  However, when a home is used in a business, the allocation of expenses may not be clear cut – for example the repairs and maintenance of a building may serve a dual purpose of preserving the family home, but also improve the appearance of a building for its use as a business. Care must be taken in allocating expenses between public and private use, with evidence kept to show that all costs claimed are ‘wholly and exclusively’ for the purposes of the trade.


Can you claim tax relief on past losses?


Where a business makes a loss it may be possible to claim tax relief by offsetting the loss against other income in the year. This is known as ‘sideways loss relief’. Since 6 April 2013, there are restrictions on the quantity of losses that may be relieved in this way, but this is still valuable where the trade has income from other sources. To claim such relief certain conditions must be met:  

The loss making activity must be a trade; 
The trade must be carried out commercially; and 
The trade must be carried out with reasonable expectation of a profit.


Consider how ‘commercial’ you are being

Where a house or garden is only opened at arbitrary times for visits, tours, possibly ‘on request’ or ‘by appointment’, or is not open for a large part of the year, this might count against its trade being seen by HM Revenue & Customs as commercial. However, where properties are open for more frequent, advertised visits, where add-ons such as lunches are available, or where there is a website stating opening times and promotional leaflets, all of these things will support claims of ‘trading’. Such claims are also supported by a business plan showing that the venture in undertaken with reasonable expectation of a profit.


Are you keeping records for costs incurred?

Where losses have been claimed over a number of years, HM Revenue & Customs may suspect that there is an alternative motive for running the business. In the situation of running a business in relation to a family house, garden, or other property, this could be seen as obtaining tax relief for expenditure (for repair and maintenance possibly) that would be incurred anyway. It is important to keep records showing that such costs are incurred wholly and exclusively for the purposes of the trade.


Are your expenses separate?

Where there is a holidays lettings business also in operation, possibly from farm or estate cottages or accommodation in the main house, care should be taken when allocating expenses between the different income streams, especially where some are profitable and others are not.

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