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What is a furnished holiday let?
A Furnished Holiday Let (FHL) is a type of rental property that only allows a tenant to occupy a fully furnished property that is self-catering for a short term basis. A furnished holiday letting property must meet specific criteria in order to be classified as an FHL, including availability, actual bookings, and level of furnishings.
Here at dns, our services for owners with furnished holiday accommodation include:
- Bookkeeping and accounts.
- Furnished holiday letting accounting and tax specialist advice.
- Tailored personal and company tax advice.
- Personal tax returns.
- VAT returns (if required).
- Online accounting software.
- Email and telephone support.
What properties count as furnished holiday lets?
To qualify as a FHL your property must be:
- in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway.
- furnished – there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.
The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but don’t make a profit, the letting will still be treated as commercial.
Occupancy conditions for FHL qualification
Accommodation can only qualify as a FHL if it passes all three occupancy conditions below:
The availability condition
The property must be available for holiday letting for at least 210 days in the tax year. Do not count any days when you’re staying in the property.
The letting condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. You can’t count days when you let the property to people you know at zero or reduced rates. You also can’t count longer-term lets of more than 31 days (unless it’s for unforeseen circumstances).
If you do not let your property for at least 105 days, you have 2 options (known as elections) that can help you reach the occupancy threshold:
- the averaging election – if you’ve more than one property.
- a period of grace election – if your property reaches the occupancy threshold in some years but not in others.
The pattern of occupation condition
A property will NOT qualify as a furnished holiday letting if it is rented out for a period that exceeds 31 continuous days and all lettings that exceed this period is more than 155 days in the tax year.
Averaging Election
If you let more than one property as a furnished holiday let, and one or more of these properties doesn’t meet the letting condition, you can elect to apply the condition to the average rate of occupancy for all of your FHL properties.
Period of Grace Election
The second way the condition can be classed as met is by making a period of grace election.
To make an election, you must be able to show that you had a genuine intention to let the property in the year. For example, you may have marketed a property as per previous successful years and lettings are cancelled due to unforeseen circumstances, like extreme or adverse weather.
In order for the election to be permitted, the letting condition must have been met in the previous year.
If the property does not meet the letting threshold after two consecutive periods of grace elections, it will no longer qualify as a furnished holiday let and the normal tax rules for rental businesses apply.
Furnished holiday let tax advantages
**SPRING BUDGET 2024 UPDATE**
At the Spring Budget 2024, the Chancellor announced that the special tax regime for FHLs will be abolished from April 2025.
From April 2025, taxpayers will no longer be able to treat their property business as a furnished holiday let (FHL) and the new rules will now treat short term lets and long-terms lets as same for tax purposes.
FHLs benefit from certain tax advantages compared with other property businesses (see below). These will cease to apply from April 2025 and transitional adjustments are likely to be required (for example, to bring in a disposal value for assets where capital allowances have been claimed).
The new measures will have far-reaching consequences for owners who have let their properties for holiday rental income and met the criteria set out in the FHL regime. It includes those who might own a single holiday home made available for letting or those who let multiple properties through Airbnb or similar websites.
Before the above changes take place, FHL tax advantages are as follows:
Capital Gains Tax relief
If you sell your Furnished Holiday Let property (FHL), you are able to claim Capital Gains Tax (CGT) reliefs. These include:
- Entrepreneur’s Relief
- Business Asset Rollover ReliefGift
- Gift Hold-over Relief
Business Asset Disposal relief
Business Asset Disposal Relief (formerly known as Entrepreneur's relief) allows a property owner (provided) other conditions are met to pay a flat 10% tax on the chargeable Capital Gains as compared to Capital Gains tax of up to 28% that may apply on non FHL properties.
Following the announcement in the Spring Budget, the legislation will be published soon and will include an anti-forestalling rule, applying from 6 March 2024, to prevent unconditional contracts being used to preserve relief under the current FHL rules.
Business asset rollover relief
Business Asset Rollover Relief means you will not pay any capital gains tax (CGT) when you dispose of an FHL property and acquire other qualifying asset. The relief basically postpones the CGT until you sell the new asset. You may then need to pay tax on the gain from the original asset.
To claim full relief, you must acquire the new asset at same or more cost than the disposal proceeds you received from selling the FHL. If the cost of acquisition is less, you may get partial relief.
Gift hold-over relief
Holdover relief on gifts means you do not pay Capital Gains Tax (CGT) when you give away business assets such as property or sell them for less than they’re worth to help the buyer. The conditions for claiming relief depend on whether you’re giving away business assets or shares.
Capital allowances
FHLs are entitled to claim capital allowances on items that improve the property and therefore increase potential rental profit. This includes things like fixtures & fittings, furniture, white goods etc. This type of allowance is not available for long-term rental accommodation.
The costs for these allowable expenses can be deducted from pre-tax profits , reducing the amount of tax that will be due on the rental income you receive through your FHL. The losses arising because of capital allowances can also be offset against other income.
As FHL will be abolished, anyone who has properties reported in the FHL section of their return needs to act quickly to ensure all Capital Allowances are claimed before the Cliff Edge abolition date of 6th April 2025.
Any income you receive from a furnished holiday letting will need to be reported to HMRC. Any income tax that's due on that rental income. FHLs are treated as a business for tax purposes, so you can offset some of your costs against the income you make in order to reduce your tax bill.
Here at dns accountants we offer the perfect accounting packages for people that own Furnished Holiday Lets or other rental properties. We provide everything you need to manage and maximise the money you earn from your FHL business or buy to let property portfolio.
Our services for property owners include:
- Bookkeeping and accounts.
- Property accounting and tax specialist advice.
- Tailored personal and company tax advice.
- Personal tax returns.
- VAT returns (if required).
- Online accounting software.
- Email and telephone support.
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