Furnished Holiday Lets – Tax Guidance

We are in the second summer of a global pandemic which, due to continued travel restrictions, has seen a significant rise in the ‘staycation’. This increased demand in holiday lets has allowed many landlords to increase their rental yield from their properties. If you are one of these landlords, then it is important to understand the tax treatment of your Furnished Holiday Let (FHL).

HMRC consider FHL to be a trade and therefore once a property qualifies for FHL it can enjoy certain benefits compared to properties rented out on a long-term basis.

What Qualifies as FHL?

To qualify as an FHL, a number of conditions must be met, such as:

  • It must be available for rent for at least 210 days of the tax year.
  • It must be let for at least 105 days in a tax year.
    • Any days where the property is let to friends or family at zero or reduced rates do not qualify for the 105 days.
    • Any longer-term lets (over 31 days) do not qualify for the 105 days.
  • If the total of all long term lets (over 31 days) exceeds must not exceed 155 days each tax year.
  • It must be furnished.
  • It must be situated in UK or any other European country (EEA).

What are the Benefits of Owning an FHL?

If your property qualifies under FHL, you are entitled to the following benefits:

  • Capital Allowances – Unlike residential rental properties, that cannot claim capital allowances, FHL properties are allowed to claim for the costs incurred to furnish the property.
  • Earnings are Counted for Pension Purposes – Any profits you earn from your FHL property is treated as earnings for your pension.
  • Capital Gains Tax Relief – When selling an FHL, you may be able to claim certain Capital Gains Tax Reliefs, such as:
    • Entrepreneur’s Relief – Taxable gains are taxed at a lower 10% Capital Gains Tax rate rather than the 18% or 28% Capital Gains Tax rate that applies to other properties.
    • Gift Hold Over Relief – This relief on taxable gains is given to an individual who has been gifted an FHL property. Capital Gains Tax is charged only when they sell this FHL property.
    • Roll Over Relief – Taxable gains can be deferred in case the owner of a property desires to buy new trading assets. If the owner sells an FHL property to buy a new FHL property, they can hold on to capital gains and taxes are computed on the new asset in the next financial year.

Summary

In order for a property to qualify as an FHL, it must be commercially let and meet the requirements mentioned earlier. The profit and loss of the FHL property must be recorded on an individual’s Self-Assessment separately from other trades and rental businesses.

Contact AJS Accountants Ltd to discuss your current FHL position.

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