Furnished Holiday Let Tax: What do you need to know?

A furnished holiday let (FHL) is a particular type of rental property classification in the UK.

If your property qualifies as an FHL, it is classed as a ‘trade’ by HM Revenue & Customs (HMRC), meaning you are entitled to various tax advantages.

However, to be given FHL status, certain criteria must be met.

Are you eligible?

To qualify, your property must be available for letting as furnished holiday accommodation for a minimum of 210 days per annum.

Additionally, your property must be rented out to the public for at least 105 days out of the 210 it is available.

Longer-term occupation of over 31 days should not be counted. However, an exception can be made if this is surpassed due to unforeseen circumstances such as illness and travel delays.

What are the tax advantages?

There are several tax advantages and benefits that you should be aware of, such as:

Capital Allowances

There are some capital allowances that can be claimed for FHLs, including expenses of refurbishing, or improving the property, as well as furniture and equipment.

You can balance capital allowances against your income, meaning the tax you pay is reduced, and the profit you gain is preserved.

Mortgage interest relief

Another notable advantage is that the full mortgage interest can be subtracted from the earnings of FHLs.

This relief is limited to the basic rate of income tax (20 per cent).

Pension contributions

The revenue you receive from this type of property is classed as Net Relevant Earnings (NRE).

This permits you to make tax-efficient pension contributions.

Capital Gains Tax (CGT) relief

Because FHLs are seen as business assets, they may qualify for some types of Capital Gains Tax reliefs such as:

  • Business Asset Rollover Relief (BARR)
  • Business Asset Disposal Relief (BADR)
  • Gift Hold-Over Relief.

Need further advice on matters related to the above? Contact us today.

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