Furnished Holiday Let Tax Guide

Furnished Holiday Let (FHL) – Tax Guide

This guide is a summary of the advantages of owning a furnished holiday let from a tax perspective. It is very important that you seek the professional advice from a qualified accountant as this is a specialist subject. For detailed information about FHL & the rules please visit www.hmrc.co.uk.

What is a Furnished Holiday Let?

A Furnished Holiday Let, also known as a FHL, is a property let on a commercial basis that meets specific criteria such as availability, intent to make a profit and furnishings.

How to qualify as a FHL?

Furnishings are essential

Although this may seem a little obvious, it is part of the requirements. The rules do not specify to what extent your property must be furnished, but if you aim to provide everything you would expect from a self-catering holiday cottage, you won’t have a problem.

Intent to make a profit

The property must be let commercially with the intent of making a profit. It is not essential to physically make profit, it’s your intent that counts. If you’re able to produce a business plan or if you’ve made your property available through a

professional letting agency then this will be easier to prove.

Be available to let

Your property must:

• Be available to let for 210 days (30 weeks),

• Be let commercially as a holiday property for 105 days (15 weeks)

• If occupied for more than 31 days by the same person/people, there must not be more than 155 days (total) of such longer lettings

Days you, your friends or family spend in the property, for free or at a discounted rate, do not count towards the total commercial occupation requirements.

If during the previous year you met the occupation requirements, a period of grace can be granted (for a maximum of two consecutive years). This means you will retain your FHL status even if you no longer meet the period of actual letting providing that other qualifying conditions are fulfilled.

When does a property stop being a furnished holiday let?

A property no longer qualifies as an FHL if it meets one of the following criteria:

• The property is sold

• The property is being used for private occupation

• The letting conditions are not met.

What are the advantages of a FHL?

Holiday Let Tax Deductible Expenses

Capital allowances can be claimed on your FHL property. This means the cost of fixtures and furnishing your cottage to a luxury standard (and in return, increasing your potential rental income) can be deducted from your pre-tax profits.

You can claim expenses allowing you to offset against your revenue. You can only claim expenses that are incurred in course of the commercial activity for the FHL. If you, your family or friends use your property, your expense will be partly considered as ‘private use’ and cannot be claimed, you will need to calculate what percentage of the expense is commercial.

• Utility bills

• Advertising or letting agency fees

• Accountancy fees

• Mortgage interest

• Cleaning products & welcome packs

• Maintenance & repairs

Make tax-advantaged pension contributions

Income generated from a FHL is classed as ‘relevant earnings’ which means you can make tax-advantaged pension contributions.

When you sell your property

If you sell your FHL, you are able to claim certain Capital Gains Tax (CGT) reliefs.

• Entrepreneur’s Relief

• Business Asset Rollover Relief

• Gift Hold-over Relief

Mortgage Interest Relief

The biggest bonus of all is that mortgage interest is fully deductible. Unlike other residential property letting, which currently has a restriction against how much you can claim relief.

Split the profits between your husband/wife

If you share the ownership of your FHL with your husband or wife, profits can be flexibly distributed between you both for tax purposes.

Council Tax & Business Rates

A self-catering property which is available for short-term lettings for more than 140 days in any given year, is subject to Business Rates.

If your furnished holiday let qualifies for business rates, the Valuation Office will calculate the rateable value of your property according to its type, size, location, quality and how much income you are likely to receive from letting it.

If the holiday home is your only second home and its ratable value is below £12,000 (most holiday homes in Cornwall will fall below this) then you will be able to claim Small Business Rate relief of 100%, so no rates to pay!