If you sometimes rent out your holiday home, you may have to pay tax on that income. Inland Revenue says you have a "mixed-use" holiday home if, during the tax year, you use it for:
It will still be deemed private use if you receive rent from family members, or from non-family members who pay less than 80% of market rates.
The property becomes "income-earning" if you get rent from non-family members at 80% or more of market rates. You must keep a record of the days it is used for income earning and those for private use, unless the situations below apply.
You can keep the property outside the tax system if it's privately owned, and your income-earning revenue is less than $4,000 a year. You can also remain outside the tax system if you make a loss, and your gross income from income-earning use is less than 2% of the property's rateable value.
If you are required to return the income for tax and an expense relates to income-earning use and private use, you need to apportion it using the formula below:
|expenses x income-earning days
|income-earning days + private use days
If you make a loss from your mixed-use holiday home, and your gross income from income-earning use is less than 2% of the rateable value, you can't claim the loss in the current year. You must carry it forward to offset against income from your holiday home in a future tax year.
If you're unsure if your holiday home is classed as "mixed-use", please drop us a line - we'll be happy to discuss your unique situation.