Posted by Angus Williams, Partner
A barn-storming idea – as featured in Financial Times
We have an unconverted barn in our garden which we are planning to convert into a holiday let. We have the planning permission, but will we need to tell the tax man?
Ultimately, yes! Whilst simply converting an outbuilding or barn from its existing use to residential does not in itself require you to notify HM Revenue and Customs, what will require notification is the business element that will eventually follow from renting the barn.
A business? I was just planning on letting it out to friends, family and their friends.
Whether a registered business or not, assuming the house, garden and the barn are owned by you, the rental income received will need to be declared as part of your individual tax return. This will be the case irrespective of what income you may receive from other sources, whether that be employed, self employed or from investments.
Didn’t the government introduce a scheme that allowed you to ‘rent a room’ without having to pay tax?
You’re right. There is a ‘rent a room’ tax free allowance of £7,500 a year for renting out a room in your home, and it is possible that occasional rental of a holiday barn might fall into this. But even so, if the income exceeds the £7,500 annual allowance, a tax return would need to be submitted to claim the relief.
What if we didn’t tell HMRC?
Failure to notify could see penalties being imposed and interest charged on the assertions made by HMRC, with the onus on you to prove otherwise.
This is beginning to sound quite complicated.
I’m afraid so – one cannot avoid the tax man. You may wish to explore transferring the barn into a different ownership structure before starting the project but whatever you do will come with reporting obligations and an annual tax return. You are likely to need advice tailored to your own circumstances – what is right for one person may not necessarily be right for another!
Angus Williams is a partner and head of residential property, farms and estates at Royds Withy King. He can be reached on:
0800 051 8050 Email us