New queries, issue 4460

A little letting

Advice required on the tax-efficient structuring of a new letting business.

A husband and wife have a small farming partnership which runs at breakeven. The husband has earnings from a separate employment which take him into the 40% tax band and the wife has no income.

They have obtained planning permission to renovate and convert two old farm cottages into holiday accommodation. This will cost about £300 000 plus VAT and will be funded from savings. Letting agents estimate that they could receive gross income of between £80 000 and £100 000 a year in holiday lettings.

My clients have asked me to consider three things.

1. They want to recover their £300 000 tax free.
2. They want to reclaim the £60 000 VAT.
3. They do not want to pay higher-rate tax on...