1954 Act tenancy agreement for non-short residential rental of holiday property

[Telometer]

Holiday properties rental income is generally subject to VAT. For a rental of longer than 28 days it is suggested in this article to grant a tenancy under the 1954 Act in which the supply of accommodation is specifically exempted from VAT.

https://www.accountancydaily.co/vat-...m-airbnb-stays

Does anybody know anything more about 1954 Act residential tenancies, please? A good trawl of the 'net, this forum and Practical Law have yielded nothing very helpful...

Many thanks for your help

[DPT57]

The only 1954 Act I'm aware of is the one for commercial tenancies, which I'm not convinced would work if the tenant wasn't operating a business there. I believe it also gives the tenant a right to automatic renewal of the lease.

[jpkeates]

The conditions in that article are extremely specific.
The owner of a BnB would be offering a long term commercial lease to a company who would then offer residential accommodation to its employees.

You couldn't let a residential property on that basis (it would have to be a BnB, hotel or hostel) and even if it were a property normally used as a holiday let (i.e. a house or a flat) it would cease to be a holiday let if let on that basis.

[Telometer]

jpkeates

Thank you for that observation which I completely missed.

"In respect of the apartment, then if this is being let longer term the client could enter into a formal tenancy agreement under the Landlord and Tenants Act 1954 and exempt the supply. They should keep a copy of the tenancy agreement or similar evidence to show that the accommodation was occupied for residential purposes only. Any separate cleaning service offered will be standard rated."

Is there any way of getting a longer-term let of a holiday property exempt from VAT? (It is permissable, in the off-season, to have longer lets so long as lets in excess of 31 days do not make up more than 155 days.) The relief from VAT on up to 80% of the rent only appears to apply to B&Bs and similar. It seems odd that longer-term rentals are not VAT exempt.

[Telometer]

Sorry, yes of course it is. VAT Notice 709/3

5.6 Off-season letting

If you let your holiday accommodation during the off-season, you should treat your supply as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

You should keep a copy of your tenancy agreement or similar evidence that you have to show that your accommodation was occupied for residential purposes only. In such cases the whole of the let, including the first 28 days should be treated as an exempt supply.

The holiday season normally lasts from Easter to the end of September, although some areas, such as London and Edinburgh, receive substantial numbers of visitors and tourists at all times throughout the year and are therefore not regarded as having a seasonal holiday trade.

The question here is therefore: "When a property is in London, where the Mayor now restricts short-term lets to a maximum of 90 days during the year, can one now regard the rest of the year as being off season?"

[Section20z]

You would not have to charge VAT unless you're over the threshold in which case you would be reclaiming VAT on expenses.
why so desperate to avoid it ?

[jpkeates]

The question here is therefore: "When a property is in London, where the Mayor now restricts short-term lets to a maximum of 90 days during the year, can one now regard the rest of the year as being off season?"

You're mixing up two separate activities.
Residential letting is VAT exempt as an activity.

What the article is proposing is that the activity be changed from holiday letting to residential letting (albeit with a company involved), the activity changes and the VAT rules change (because the activity is no longer holiday letting.

If a holiday let exceeds 28 days, it's still a holiday let, just a long one.
So the holiday let VAT rules apply.

The "off season" references are misleading and don't affect tax - it's the activity that's taxable, not the season.

The issue doesn't normally arise because very few properties are used for both residential and non-residential letting.
The legal and tax frameworks are very different.
The rights of someone visiting somewhere for a fortnight and someone living in a property are very different.

[DPT57]

If you want a long let it is likely that it will be an AST and you will have to follow all the regulations and requirements of a tenancy.

[Telometer]

JPKeates thank you for your response. Forget about the article, that was a red herring as you kindly pointed out.

The "off season" references are misleading and don't affect tax - it's the activity that's taxable, not the season.

Unless I have misunderstood you I don't think that's correct. The extract from VAT Notice 709/3 I posted above makes it quite clear that long lets in the off season are exempt from VAT.

The reason this is required is because the VAT legislation specifically disapplies the exemption for granting of any interest in land where the accommodation is holiday accommodation:

Sch 9 Part II Group 1 Exempt is the grant of any interest in land, other than: (e) the grant of any interest in, right over or licence to occupy holiday accommodation.

VATLP12100 states "The provision of holiday accommodation is standard rated." The definition in VATLP12200 includes “any accommodation in a building, hut (including a beach hut or chalet), caravan, houseboat, tent or other structure held out as suitable for holiday or leisure use.”

This being London, one is restricted to 90 days of holiday letting - i.e. lets of less than 90 days. So what are lets of more than 90 days that don't reach the point of being an AST (which are obviously exempt)? I don't think a let of more than 90 days can possibly be regarded as 'holiday'. The problem is the definition in VATLP12100 above "a building HELD OUT as suitable for holiday use". So the moment it is on Airbnb you are perhaps holding it out as suitable for holiday use and you have a VAT problem? Even if the person who comes to occupy it wants to work.

Section20z - because input VAT on a holiday let (or this one anyway) is minimal. Therefore crossing the VAT registration threshold is effectively a 14k tax charge.

[theartfullodger]

Think it may be LL & Tenant Act 1954 - see
https://www.legislation.gov.uk/ukpga...-3/56/contents

Found a reference to it from Mssrs Shelter here...
https://england.shelter.org.uk/legal...m_protection#9

Business premises

A tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies will not be protected by the Rent Act 1977. This covers any tenancy where the property is occupied for the purpose of a business (apart from a 'home business tenancy' - see below). The business use must be a significant, not incidental, reason for occupation.

But also see
https://simply-docs.co.uk/Home-Busin...n-Holiday-Flat

Thought the general view was the country needs more tax income, not people trying to wriggle out...

[jpkeates]

Unless I have misunderstood you I don't think that's correct. The extract from VAT Notice 709/3 I posted above makes it quite clear that long lets in the off season are exempt from VAT.

The reason that they're exempt from VAT isn't because it's the off season, it's because they're not holiday lets.
The lets have to be "let as residential accommodation for more than 28 days and [where] holiday trade in the area is clearly seasonal."

This being London, one is restricted to 90 days of holiday letting - i.e. lets of less than 90 days. So what are lets of more than 90 days that don't reach the point of being an AST (which are obviously exempt)?

For an AST to arise it would have to be one of the tenant's only or principle home.
But the exemption is based on residential use, not the existence of a particular type of lease.
And residential use is where someone is living - which can be for a few days or longer, where the purpose is not a holiday.

I don't think a let of more than 90 days can possibly be regarded as 'holiday'.

Again, that would depend on the facts of the situation.

The problem is the definition in VATLP12100 above "a building HELD OUT as suitable for holiday use". So the moment it is on Airbnb you are perhaps holding it out as suitable for holiday use and you have a VAT problem? Even if the person who comes to occupy it wants to work.

Holiday accommodation that is held out for holiday use doesn't attract VAT until it is actually used for that purpose.
I suspect that when someone stays in the property for more than 28 days, the purpose of their stay determines the VAT treatment.

Under 28 days, if you're claiming that you are offering a holiday let and someone comes and stays for a few days, I think everyone is happy that it's treated as a holiday let and it's VATable.

You'd need some kind of test case to argue that a (say) seven day stay for work purposes isn't VATable, and that opens a can of worms, because if it isn't a holiday let it might be some kind of tenancy, and my guess is no one wants that.

[MdeB]

Unless I have misunderstood you I don't think that's correct. The extract from VAT Notice 709/3 I posted above makes it quite clear that long lets in the off season are exempt from VAT.

The reason this is required is because the VAT legislation specifically disapplies the exemption for granting of any interest in land where the accommodation is holiday accommodation:

Sadly, I have recently spent a significant amount of time looking at VAT rules.

I think that what the VAT notices are saying is "These are the rules if you want to be able to claim input VAT as a deduction from output VAT"

I would guess that if you do not comply with the rules (as would be the case in London), then one (or a combination) of the following is how HMRC would see it (but you need to get your accountant or HMRC to tell you which)

1. You cannot claim any input VAT as a deduction from output VAT.
2. You can claim input VAT for the period when available for holiday lets but not for the period when let as residential accommodation.
3. You can pro-rata the input VAT over the financial year
4. You can claim input VAT for the period when operating as holiday lets only for purchases that are consumed within the holiday letting period.

My thoughts on these:

1. This is likely to be what HMRC would say.
2. This has the problem of "gaming" by arranging long-term expenses (such as decorating or replacing a boiler) to occur during the holiday-let period.
3. Whilst that sounds appealing, some expenses will cover several financial years (see 2), and VAT returns are typically 3-monthly, so VAT returns would be complex (and expensive), and invite a VAT inspection.
4. This is likely to be the best you could get.

I don't think your "90 day" argument has any merit because it does not specify which 90 days (it leaves that up to you), and therefore there is no defined off-season.