Owning and operating a holiday let can be incredibly rewarding. Not only does it provide delightful getaways for your family and friends, but it also offers the potential for a lucrative additional income. In this guide, we delve into the advantages of having your holiday property qualify as a Furnished Holiday Let (FHL) for tax purposes.
What is a furnished holiday let?
A Furnished Holiday Let, or FHL, is a specific rental property classification available for qualifying properties in the UK, Northern Ireland, and other European countries. This classification comes with several tax benefits, provided certain criteria are met, such as availability, actual bookings, and the level of furnishings.
Holiday Let Taxes in 2024
The surge in demand for short-term holiday accommodations in the UK is expected to continue in 2024, offering great profit potential for holiday let owners. However, 20% to 45% of profits are paid in taxes to HMRC, making it essential to ensure correct tax payments. Many owners underclaim or don't claim their capital allowances, missing out on substantial tax savings. We encourage all holiday let owners to review their capital allowances entitlement to avoid overpaying taxes.
How to qualify as a furnished holiday let
To qualify as an FHL, your property must meet the following criteria:
Furnished property: Your property must be furnished to a level expected of a self-catering holiday cottage.
Commercial letting: The property must be let commercially with the intent to make a profit. Demonstrating a business plan or listing through a professional agency can support this.
Availability: Initially, the property must be available to let for at least 210 days and let commercially for at least 105 days per year. Longer occupancies by the same person for more than 31 days should not exceed 155 days in total per year.
Days used by owners or friends at discounted rates do not count toward commercial occupation requirements. If these criteria are not met, flexibility options like averaging across multiple properties or grace periods may apply.
Termination of FHL status
A property ceases to qualify as an FHL if it is sold, used for private occupation, or fails to meet the letting conditions, including averaging and grace period elections.
Tax advantages of furnished holiday lets
Capital allowances: These provide tax deductions for assets used in your holiday let business, including furnishings, equipment, and certain refurbishment costs. Claiming these can significantly reduce taxable profits.
Pension contributions: Income from FHL properties qualifies as ‘relevant earnings,’ allowing for tax-advantaged pension contributions.
Capital gains tax relief: When selling an FHL property, certain CGT reliefs are available, such as Business Asset Disposal Relief and Business Asset Rollover Relief.
Profit splitting: Profits from FHL properties can be apportioned flexibly among joint owners for tax purposes, unlike long-term rental properties.
Disadvantages of furnished holiday lets
Losses: FHL losses cannot be offset against other taxable income and must be carried forward to offset future profits.
Allowable expenses: Expenses must be commercial, and private use expenses must be proportionately calculated.
Other considerations
VAT on holiday lets: If your holiday let income exceeds £85,000 in a rolling 12-month period, you must register for VAT and charge 20% VAT on guest fees.
Council tax and business rates: Properties available for short-term lets over certain thresholds may be subject to business rates, potentially qualifying for Small Business Rate Relief.
Government financial support
Various schemes introduced during the COVID-19 pandemic, such as the Business Rates Relief and Small Business Grant Fund, have supported holiday let owners. While some schemes are no longer available, ongoing support like the New Loan Recovery Scheme and Period of Grace Elections remains accessible.
Why not speak to Guested today?
We're a small, family-owned business that was established out of a passion for providing a professional, personalised, and friendly short-term let service. Our expertise lies in managing self-catering holiday lets in Falmouth and the surrounding areas.
Contact us today!
Don't wait to start your Cornish adventure. Contact Guested to see if we can work together:
Email: ali@guesteduk.com
Phone: +44 75022 97275
Website: Guested