A key area for income generation within landed estates and other rural property during the summertime can be granting access to the house, garden and grounds to the public.
This is according to Saffrey Champness, a UK-based accountancy firm, that said opening a rural house and grounds, if only for short periods for weddings, tours or events, provides a “valuable income stream” to contribute towards upkeep, maintenance and repair.
Partner at Saffrey Champness and a member of its landed estates and rural business group, Sally Appleton, released guidelines for farmers and other rural property owners on how to go about unlocking this income.
Appleton said that expenses incurred for the purposes of the trade can be deducted from the income received in order to calculate the profit of the business for tax purposes.
However, she explained, 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.
“Great care must be taken in allocating expenses between public and private use and keeping evidence of all costs claimed as being ‘wholly and exclusively’ for the purposes of the trade,” she said.
More guidelines
Appleton highlighted a further area of difficulty in knowing the difference between what constitutes a repair expense and is therefore eligible for immediate and full tax relief, and what is a capital improvement which attracts tax relief at different rates or sometimes none at all.
“This can be a complex area. For example, alterations to buildings can be considered to be capital improvements even if nothing is actually added,” she said.
When a business makes a loss, Appleton explained that 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’. There are restrictions on the quantity of losses that may be relieved in this way, but this is still valuable where the taxpayer has income from other sources,” she said.
“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.”
Where losses have been claimed over a number of years, HMRC may enquire into the motive for running the business, Appleton said.
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 that would be incurred anyway, she said.
“It is important to keep records showing that such costs are incurred wholly and exclusively for the purposes of the trade,” she said.
Tax
Appleton warned that, where a property or gardens are only open for a limited number of days, there must be “a clear distinction between private and commercial use for tax purposes”.
“What defines ‘commercial’? 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 HMRC as commercial,” she said.
“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 these will support claims of ‘trading’.
“Such claims are also supported by a business plan showing that the venture is undertaken with a reasonable expectation of a profit.”
Another guideline of Appleton’s relates to where there is a holidays lettings business also in operation, possibly from farm or estate cottages or accommodation in the main house.
When this occurs, care should be taken when allocating expenses between the different income streams, especially where “some are profitable and others are not”, she said.
Appleton urged all those considering opening up their land to the public to fully research all the legal requirements.
“When considering adding a new income stream to your business, you must always consider any VAT consequences,” she said.
“These can be complex and depend on the nature of the income and should be discussed with your professional advisor.”
