Summary. Furnished Holiday Lettings (FHL) offer tax advantages in the UK and Ireland. To qualify, properties must meet specific availability and booking criteria, and be furnished. Benefits include claiming capital allowances, making tax-advantaged pension contributions, and accessing certain Capital Gains Tax reliefs. FHLs are subject to Business Rate tax but may get Small Business Rate Relief.
What is a Furnished Holiday Let?
A Furnished Holiday Let is also known as an FHL. It is a certain type of rental property classification in the UK and Ireland (and some European countries). As a holiday let owner under this classification you are entitled to certain furnished holiday lettings tax advantages. However, the property must meet specific requirements in order to classify it as an FHL. This is such as its availability, actual bookings and level of furnishings.
Advantages of a Furnished Holiday Let?
- Holiday Let Tax Deductible Expenses. You can claim capital allowances on your FHL property. This means the cost of furnishing the property to a high-standard to increase potential rental income can be deducted from your pre-tax profits. This is not the same for long-term rental properties.
- Make tax-advantaged pension contributions. Income generated from a FHL property is classed as ‘relevant earnings’ which means you can make tax-advantaged pension contributions.
- Selling your holiday let. If you should come to sell your FHL property, you are entitled to claim certain Capital Gains Tax (CGT) reliefs (again, long-term rentals are not eligible). These include; Entrepreneur’s Relief, Roll-over Relief and Hold-over Relief.
- Split profit. Another benefit to FHL properties is should you own your FHL with your husband or wife, profits can be split between you both for tax purposes.
Council Tax for Holiday Lets
A self-catering accommodation that is available for short-term lettings for more than 140 days in any given year, is subject to Business Rate property tax. Since all FHL properties must be available to let for a minimum of 210 days, they fall into this category. However, you are entitled to claim Small Business Rate Relief, which can be up to 100%.
How to qualify to be a Furnished Holiday Let
According to HMRC to qualify as an FHL your property must be:
- in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway
- furnished – there must be sufficient furniture provided for normal occupation and you must entitle your visitors to use the furniture
- The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but didn’t make a profit, the letting will still be treated as commercial.
The letting condition
Furnished Holiday lettings tax rules
In order to qualify for furnished holiday lettings tax advantages, there are certain rules that need to follow. You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier). You cannot count any days when you let the property to friends or relatives at zero or reduced rates as this isn’t a commercial let.
Longer-term lets of longer than 31 days will also be disregarded. The exception to this rule if the 31 days is exceeded due to unforeseen circumstances such as if the holidaymaker either:
- falls ill or has an accident, and can’t leave on time
- has to extend their holiday due to a delayed flight
If you are unable to meet the 105 days, you have 2 options (known as elections) that can help you reach the occupancy threshold:
- the averaging election (if you’ve more than one property). This can apply if you have more than one FHL property that is not meeting the letting condition of 105 days. You can elect to apply the letting condition to the average rate of occupancy for all the properties.
- a period of grace election (if your property reaches the occupancy threshold in some years but not in others). This allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions are met. However, if your property doesn’t reach the threshold by the fourth year, after 2 consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.
Contact us today
For more information on furnished holiday lettings tax call us today on 01384 261300 or visit our website for more information on furnished holiday lettings tax changes. Thomas Nock Martin offers expert tax advice for small business and small business accounting UK so get in touch today.
If you have found this blog helpful, you may wish to read our previous blog on Self Assessment Tax Returns.
