5 top tax tips on furnished holiday lets

Published by Jo White on 11 January 2022

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With the staycation market still buoyant those who have, or are thinking of, letting out property to capitalise on this industry need to be aware of the tax matters relating to this type of income.

The letting of Furnished Holiday Lets (FHL) can be very beneficial for tax purposes compared to the letting of an more traditional rental property.  To meet the Furnished Holiday Letting conditions the property has to:

  • Be available for letting as furnished holiday accommodation for at least 210 days in the year;
  • Be let commercially as furnished holiday accommodation to the public for at least 105 days in the year, excluding periods of longer-term occupations; and
  • Not let for periods of longer-term occupation (more than 31 continuous days) for more than 155 days during the year.

Both companies and individuals can apply the FHL rules to qualifying properties.  The period of review will however differ. The FHL rules can also apply to properties in the EEA.

Focusing on an individually owned FHL, our top tips are:

1. Where there are finance costs being incurred in relation to the property then these can be deducted in full as no interest restrictions need to be applied as they do for a more traditional rental property.

2. More tax relief is available on capital expenditure. For example, if the property is run as an FHL then tax relief can be claimed on heating systems, lighting systems, electrical systems as well as kitchens and bathroom costs where they would not ordinarily be considered repair costs.

3. The sale of the property itself could qualify for Business Asset Disposal Relief, allowing a rate of 10% to be paid on any chargeable gains, a potential Capital Gains Tax saving of 18%.

4. The income is counted towards your UK earnings for pension purposes therefore personal pension contributions may not be restricted to £3,600 per annum.

5. FHL income is taxable turnover for the purposes of VAT. Should your total FHL income, or FHL income plus other taxable turnover, exceed the VAT threshold then you will be required to register for and charge VAT to your customers.  The benefit however is that Input VAT can be claimed back on relevant costs where it wouldn’t ordinarily. You can find out further information on VAT  for holiday lets, in our article ‘Holiday accommodation- watch out for VAT.’

For more information about the topic explored in this article, contact us here

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