by Luke Edwards
Our furnished holiday let tax guide gives you a brief rundown of the holiday let tax rules.
If your property can be classed as a Furnished Holiday Let (FHL), it allows you to have certain tax 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?
What Are the Furnished Holiday Let Tax Benefits? (Business Rates Relief)
Value Added Tax (VAT)
What Will Be Classed as an Expense in 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:
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.
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.
There are three main conditions that you must comply with in Wales.
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.
Capital Allowances can be claimed for capital expenditure at your property.
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.
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 get to the stage where you need/want to sell your property, CGT relief can be claimed on a propery, which is normally only available to trading ventures. These include:
This means you’ll only pay tax at 10% on all gains on qualifying assets rather than 18% or 28%.
Business asset rollover allows specific chargeable gains to be deferred if new trading assets are acquired.
Gains on the sale of your property 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.
Allowing chargeable gains, that would otherwise arise on a gift of the property to be deferred.
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.
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.
In Wales, Small Business Rate Relief is available on a property that is available to let for 140 days or more AND is let for 70 days or more.
As of April 2o23, this is scheduled to increase to being available to let for at least 252 days and will have been let for at least 182 days in any 12 months.
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 email@example.com
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 FHLs 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 businesses and are a VAT registered individual, your FHL income may be subject to VAT.
FHL are treated similarly 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:
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 of expenses
For further advice on the financial side of holiday letting, we would always recommend that you speak to a qualified accountant who will be able to give you the best possible advice.
Find out more about how we can work together and maximise your holiday let income. We are a local brand with a national reach and have over 36 years' experience in self-catering holidays in the UK.
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