Our holiday let tax guide gives you a brief rundown of some of the holiday let tax rules such as business rates, VAT, and stamp duty as well as information regarding registering as an FHL (Furnished Holiday Let).
The fact that your property can be classified as a Furnished Holiday Let (FHL) means that you are entitled to certain tax benefits that are normally only available to trading businesses if the property is classified as an FHL. This can be either a house, cottage, flat, suite of rooms or caravan, so long as it meets certain criteria.
Below we give you a breakdown on all things tax related when it comes to holiday letting in Wales.
The following blog contains information on the following topics: –
Do I Need To Pay Council Tax?
Business Rates Relief
How Does It Differ in Wales?
How Does My Holiday Home Qualify as an FHL?
What Are the Furnished Holiday Let Tax Benefits?
What Will Be Classed as an Expense in an FHL?
Value Added Tax (VAT)
Stamp Duty
Expert Tax Advice
Do I Need To Pay Council Tax?
It is only necessary to pay council tax on a second home if the property is used for personal purposes and not for commercial purposes. If you were to register your property for business rates, and met the criteria as shown in the section below, then you would be eligible for small business rates relief. If you do not meet the criteria, then you will have to pay council tax.
As of April 2023, councils in Wales announced that they would be introducing a premium on council tax for second homes. You will need to check with your local authority as to what this premium would be as it varies across Wales or speak to your letting agent.
In addition to the Small Business Rates Relief that you can get from holiday let properties, there are also advantages for furnished holiday let properties that you can take advantage of. You can read more about business rates in Wales below.
Small Business Rates Relief
Any self-catering accommodation that is available to let for 140 days or more per year is subject to Business Rate tax. You may, however, be able to claim Small Business Rate Relief which will reduce the amount of council tax you need to pay.
If your property’s rateable value is less than £15,000 you will be eligible for Small Business Rate Relief – you can calculate your property’s rateable value online with HMRC.
How Does It Differ in Wales?
Small Business Rate Relief in Wales is available if you are renting a property that has been available for a period of 140 days or more AND is being rented for a period of 70 days or more during that period.
Since April 2023, this amount is to be increased so that it will be available for letting for at least 252 days per year, and the number of days rented in that 12 month period must be at least 182.
To receive an application form for Small Business Rates Relief you will need to contact the VOA (Valuation Office Agency) on 03000 505 505 or email ratingwales@voa.wales.gov.uk.
How Does My Holiday Home Qualify as an FHL?
To qualify for the benefits and allowances, your holiday let will be classified as a ‘trade’ by HMRC and will need to meet the following criteria:
- Commercially let with the view to make a profit
Your holiday home must be let on a commercial basis and with the view of making a profit.
Using a holiday letting agency like Menai Holidays, we will help to ensure you see the best possible returns on your holiday cottage, whilst receiving the most up-to-date advice possible.
- Furnished to a certain standard
Stating the obvious we know, but the house must be furnished.
There are no rules that specify how much furniture you need.
Furnishing the property as you would expect to find a holiday cottage yourself, you will be on the right track.
Our dedicated owner team would be very happy to pop out and meet you at your holiday home to help point you in the right direction with the final furnishings and finishing touches.
- Availability to and occupancy of your holiday let
There are three main conditions that you must comply with in Wales.
- Be available for commercial holiday letting to guests and holidaymakers for at least 210 days per year
- Your holiday home must be rented out to the public for at least 105 days of the 210 days you have made available. Family use of the property doesn’t count towards the total.
- If occupied by the same person for more than 31 days, there shouldn’t be more than 155 days of such ‘long term occupation’.
If you are unable to meet the letting criteria in a tax year for exceptional circumstances (e.g. COVID or refurbishment), HMRC does allow a ‘Period of Grace Election’.
If you own multiple furnished holiday lets, your occupancy requirements for each let can be calculated as the average of all the days across all of the properties. Therefore, if some of the holiday homes fail to meet the occupancy requirements, other holiday homes may be able to fill in for them.
What Are the Furnished Holiday Let Tax Benefits?
- Claiming Capital Allowances back
Capital Allowances can be claimed on the purchase, construction, or refurbishment of your holiday let, there is no time limit to make a claim.
You can also claim capital allowances for items such as cookers, fridges, televisions, sofas, tables, carpets, curtains, etc.
To claim capital allowances you must be
- An FHL (Furnished Holiday Let) for tax purposes (must meet the FHL criteria – see above)
- Pay tax in the UK
- Invested over £100k on the purchase, building, converting, or refurbishing of a holiday let property
If you’d like to learn more about capital allowances, you can speak to our official partner Zeal who are capital allowance specialists for a FREE consultation.
If you are eligible to make a claim, Zeal offers our owners a 10% discount on their fees, which are on a No Win/No Fee basis.
You can call them on 01633 499771 or Sykes@gozeal.co.uk.
You can also visit their site through your owner portal, make sure you make them aware you are a Sykes family owner.
- Tax-advantaged pension contributions
Income from your property counts as ‘relevant earnings’ for pension contribution purposes. This means that tax-advantaged pension contributions can be made.
If you ever sell your property, certain CGT reliefs can be claimed on a property, which is usually only available to trading ventures. These include:
This means you’ll only pay tax at 10% on the gain you make on your property rather than 18% or 28%.
Note* if you lived in the property, part of the gain may be exempt by Private Residence Relief (PPR).
When new trading assets are acquired, some of the chargeable gains can be deferred if they are included in the rollover.
It may be possible to defer gains on the sale of your property if you use this relief, and it may also be possible to defer gains on the acquisition of another FHL property if you use this relief to acquire that property, which allows gains on that property to be deferred.
It is possible to defer the calculation of chargeable gains on gifts of property that would otherwise arise when the property is gifted.
- Split the Tax between partner
For tax purposes, when a holiday home is owned jointly with a partner or spouse, the profits can be split however you like for tax purposes, regardless of the actual percentage shares in their ownership of the holiday home they have in their name.
What Can Be Classed as an Expense in an FHL?
As far as expenses are concerned, FHL are treated similarly to those of a business when it comes to their budgets. This means expenses can be offset against the income on the holiday let, so long as they are:
- Claimed against commercial use only
If the house is for private use, you will need to calculate what percentage of the expense is commercial
Capital expenses are one-off payments for the purchase or construction of the property or its improvements
Below are some examples, to find out in more detail what would qualify as a capital expense, you can read this handy guide by our friends over at Zeal.
- Utility bills or refuse collection
- Interest on loans associated with the property
- Advertising or letting agency fees
- Products purchased for the house (cleaning products and welcome packs)
- Maintenance and cleaning costs.
Stamp Duty
Another payable tax is Stamp Duty (Land Transaction Tax) – in Wales, you are required to pay LTT on any property or land you purchase in Wales over a certain amount. Residential properties purchased at main rates are subject to the current LTT threshold of £225,000, and non-residential properties are subject to the same threshold of £225,000.
To find out more about Land Transaction Tax (Stamp Duty) click here
Value Added Tax (VAT)
Your property will need to be registered for VAT if its turnover exceeds the VAT threshold.
The current threshold is set at £85,000 per year. Most FHLs are unlikely to achieve this level of income unless your holiday home is a large or high-end house.
There is, however, a possibility that you could be subject to VAT if you own multiple holiday lets or have separate businesses and are a VAT registered individual.
Help! I Need Some Advice on Taxes?
For further advice on the financial side of holiday letting, we would always recommend that you speak to a qualified professional who will be able to give you the best possible advice.
You can speak to our official partner Zeal who are the holiday letting tax specialist for a FREE consultation.
They specialise in
- Capital Allowances – Unlocking the tax savings on the purchase, construction, conversion or refurbishment of holiday lets
- Tax Compliance – Annual tax return submissions
- Tax Advice – Advice on how to structure a holiday let business for tax efficiency or to answer any complex tax queries
You can call them on 01633 499771 or Sykes@gozeal.co.uk.
You can also visit their site through your owner portal, make sure you make them aware you are a Sykes family owner.
Useful Links
Please Note: The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA.
As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providing and can’t provide you with this.
