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A Guide to Furnished Holiday Let Taxation - Menai Holiday Cottages

What is a Furnished Holiday Let?

Our furnished holiday lettings tax guide gives you a brief rundown of the tax implications of Furnished Holiday Lets (FHL). If your Holiday Cottage is an FHL, it allows you to have certain tax advantages and benefits that are normally only available to trading businesses. The holiday let can be a house, cottage, flat, suite of rooms or caravan, so long as it meets certain criteria.


How does my Holiday Home qualify as an FHL?

To qualify for the benefits and allowances, your cottage will be classified as a ‘trade’ by the 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 to 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 is required, however, if you furnish the house as you would expect to find a holiday cottage yourself you will be on the right lines. 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 relation to occupancy

  1. Be available for commercial holiday letting to guests and holidaymakers for at least 210 days per year 
  2. 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.
  3. 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 have multiple furnished holiday lets, the occupancy requirements for each let can be calculated as an average for all days against all of the properties, so if one holiday home fails to meet the condition it may be ‘buoyed-up’ by other properties. 

 

A Guide to Furnished Holiday Let Taxation


What are the tax benefits of owning a Furnished Holiday Let

  • Claiming Capital Allowances back

Capital Allowances can be claimed for capital expenditure at your Holiday Cottage. This can include items such as cookers, fridges, televisions, sofas, tables, carpets, curtains etc. Normal Letting businesses are unable to claim Capital Allowances on this sort of expenditure. Currently, the first £200,000 of capital expenditure incurred by a person can qualify for 100% Capital Allowances.

 

  • Tax-advantaged pension contributions

Income from a Furnished Holiday Let counts as ‘relevant earnings’ for pension contribution purposes. This means that tax-advantaged pension contributions can be made. 

 

  • Capital Gains Tax relief

If you ever get to the stage where you need/want to sell your Holiday Home, CGT relief can be claimed on an FHL, which is normally only available to trading ventures. These include:

  • Entrepreneurs’ Relief

This means you’ll only pay tax at 10% on all gains on qualifying assets rather than 18% or 28%.

  • Roll-over relief

Business asset rollover allows specific chargeable gains to be deferred if new trading assets are acquired. Gains on the sale of FHLs can be deferred using this relief and the acquisition of an FHL property can count as a new trading asset allowing gains on the other assets to be deferred.

  • Hold-over relief

Allows chargeable gains, that would otherwise arise on a gift of the property to be deferred. 

  • Split the Tax between partner

If the holiday home is owned jointly with a partner or spouse the profits can be split however you like for tax purposes, irrespective of the actual shares in their ownership of the FHL property. 

  • Small Business Rate Relief

Any self-catering accommodation that is available to let for 140 days or more per year is subject to Business Rate tax. As FHL’s must be let for at least 210 days in a year, they automatically fall into this category. 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.

 


Value Added Tax (VAT)

If the turnover on your property exceeds the VAT threshold you will need to become VAT registered. The current threshold is set at £85,000 per year. Most FHL are unlikely to achieve this level of income unless your holiday home is a large or high-end house. However, if you own multiple holiday lets or have separate business and are a VAT registered individual your FHL income may be subject to VAT.


What is classed as an expense in an FHL?

FHL are treated in a similar way to that of a business when it comes to expenses. 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 used for private use, you will need to calculate what percentage of the expense is commercial

 

  • Are not capital 

Capital expenses are one-off payments for the purchase or construction of the property or on its improvements

 

Below are some examples of expenses

  • 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.

 


Useful Links

 

The above is a very brief overview of the tax rules around holiday homes. We would always recommend that you speak to a qualified accountant who will be able to give you the best possible advice.

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