Furnished Holiday Lets – Tax Considerations
We do not give any tax advice to holiday property owners but below are a few things to consider that could apply to you if you decide to holiday let. We recommend seeking further advice from an accountant about your own circumstance.
A Furnished Holiday Let (FHL) is a certain classification of a property in the UK or EEA, that provides certain tax benefits to holiday property owners. For a property to fall in this category, it must meet a few specific requirements.
• It must be available to holiday let for 210 days and actually let for 105 days. The time that you, your friends and family stay in your property does not count towards either figure.
• Should you not meet the 105-day requirement after a qualifying year, you can still elect to be a FHL for the following two years if your property still meets all the requirements
• Cannot be let for longer term periods (more than 30 consecutive days to the same holidaymaker) for more than 155 during a year.
• Property must be furnished.
• The intent of holiday letting your property must be to make profit.
• If your property qualifies as a FHL, then you could claim capital allowances on qualifying “plant and machinery” expenditure. This usually covers fixtures, furnishings, and equipment. These costs can therefore be deducted from your pre-tax profits.
• You can still claim full relief for interest costs
• If the FHL is disposed of and a gain is made on the sale, it may be the case that this gain could qualify for Entrepreneurs’ Relief (ER). ER enables qualifying gains to be taxed at 10% instead of 18% or 28%. The business would have to have been a FHL for a minimum of 12 months.
• Do not have to pay council tax if your property is a FHL. You will however be required to pay business rates.
Other things to consider:
• You can claim back VAT on expenditure but must charge VAT on all rentals. If your total rental income for the year does not exceed the VAT registration threshold, then you will not generally have to pay VAT.
• Any profit you make from your holiday property is seen as income, therefore income tax applies.
• An extra 3% on Stamp Duty Land tax may apply on purchase.
We highly recommend discussing your own circumstance with an Accountant, such as Peplows, who can best advise you about tax regarding your holiday property.