Let’s delve into the fascinating realm of the UK tax treatment of Furnished Holiday Lets (FHLs). If you’ve ever dreamt of turning your cozy cottage or charming apartment into a holiday retreat, you’re in the right place. Here we will untangle the complexities of tax rules and discover how FHLs bring a unique blend of relaxation and financial benefits.
A property will qualify as a furnished holiday let (FHL) if all the following conditions are satisfied:
- The property needs to be furnished. There must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.
- The property must be situated in the UK or any other state in the European Economic Area (EEA).
- The property must be available for commercial letting as holiday accommodation to the public for at least 210 days in the relevant 12-month period (usually the tax year).
- Of these 210 days, the property must be let for 105 days or more as holiday accommodation. This is referred to as the ‘letting condition’.
Accommodation is not normally regarded as holiday accommodation if there is a continuous period of more than 31 days during which the property is rented by the same person. Therefore, properties normally let on a long-term basis do not qualify as FHL.
If you let more than one FHL and one or more the properties does not meet the letting condition of 105 days an election can be made to apply an average rate of occupancy for all the properties let. This is an averaging election.
The time limit for making this election is up to one year after the 31 January following the end of the tax year.
If you genuinely intend to meet the letting condition but you were unable to, a “Period of Grace” election can be made. This is likely to be occur whereby several bookings have been cancelled due to unforeseen circumstances. Further conditions do apply and need to be considered before making the election.
All FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. Therefore, separate records will need to be kept for each FHL business as the losses from one FHL business cannot be used against the profits of the other.
Here is a general overview of the tax treatment for FHL within the UK:
- Profits from a furnished holiday let count as earnings for pension purposes.
- Expenses: You can deduct certain expenses related to the property, including a full deduction of mortgage interest, maintenance, repairs, utilities, and other costs associated with the running of the holiday let.
- Capital Allowances: The FHL will be eligible for capital allowances on items such as furniture, fixtures, and equipment within the property.
- Business Rates: Holiday lets in England that meet certain criteria may qualify for small business rate relief, which can reduce the properties business rates.
- Losses: If your furnished holiday let realised a loss during the year, the loss will be carried forward and relieved against future profits. It cannot be claimed against other income or profits.
- Capital Gains Tax: FHLs qualify for certain capital gains reliefs that are not applicable to normal lettings. These reliefs include rollover relief, gift relief and business asset disposal relief.
Navigating the intricate landscape of the tax treatment for Furnished Holiday Lets in the UK can be confusing so our specialist property tax team can help you gain a clearer understanding, whilst our business advisory coaches can help you turn your holiday property into a lucrative investment.
Remember that staying informed and leveraging the available tax incentives can make a significant difference to your financial journey.
Contact us for more information or guidance.