Nothing seems to demonstrate the effect of last year’s staycation boom quite like the quintessential Great British beach hut

27.04.2022
Matthew Waters
Hospitality and Leisure
Stock image of beach huts

In 2021, research by hotel booking website Hoo suggested that the average asking price of a beach hut had increased by 41% as British holiday-makers stayed within our shores, while a follow-up study this month has shown a reduction of 24% as the staycation property bubble maybe doesn’t burst, but begins to deflate.

Stock image of beach huts

This huge price volatility has brought more attention to the beach hut market, where towns like Southwold have seen huts in coveted spots on the market for £150,000, while £80,000 would be needed if you wanted a prime location in Wells or Felixstowe.

The buyer of the hut will enjoy a picturesque view out over the sea for their days at the beach with family and friends, but the vendor may find themselves with a surprise tax bill. While the hut might not have much more in the way of amenities than a garden shed, their disposal is subject to capital gains tax, just as if a holiday home were sold.

It will be the gain on the disposal which will be taxed, which will be the sale price less the original cost and any commission or legal fees. For 2022/23, individuals have a £12,300 capital gains tax-free allowance to set off against, or cover in full, the gain on disposal.

The rate at which the gain, after setting off any available allowance allowance, will be taxed is then dependent on the tax-payer’s income. For a higher or additional rate taxpayer, the gain is subject to tax at 20% (as the hut is treated similarly to commercial property or investments rather than residential property which would be taxed at 28%).

For a basic rate taxpayer, they will need to establish how much of their basic rate band they have remaining. The gain will then be taxed at 10% on any gain up to the top of their basic rate band, with the remaining gain being taxed at 20%.

As it is not a residential property, the sale of a beach hut will not fall within HMRC’s 60 Day Reporting requirements and will instead need to be included on a self-assessment tax return or reported using the Real Time Capital Gains Tax Service. 

Example

Mr Blake purchased a beach hut for £25,000 several years ago and sold this on 6 April 2022 for £55,300 after fees, recognising a gain of £30,300. He has made no other capital gains in the tax year and so can set off his annual capital gains tax-free allowance of £12,300 to leave a gain subject to tax of £18,000.

His annual salary from his employment is £48,270, which deducted from his basic rate threshold of £50,270 leaves him with £2,000 of the gain taxable at 10% with the remaining £16,000 taxable at 20%, giving rise to a capital gains tax liability of £3,400.

He doesn’t currently complete a self-assessment tax return and so has 2 choices; he could use the Real Time service to report the gain by 31 December 2023 following which HMRC would issue a payment reference and details of how to pay, or he could register to complete a tax return for 2022/23 which would need to be filed and the tax settled by 31 January 2024.

If the beach hut is held in joint names, then the gain will be split in proportion to their ownership share and each owner will have their own individual annual capital gains tax-free allowance of £12,300 to utilise against this.

If you are looking to buy or sell a beach hut and have any questions about the tax implications, then don’t hesitate to contact one of our Hospitality and Leisure specialists.

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