Holiday lets – occupancy and benefits

There are a number of tax incentives if you own and let a furnished holiday lets property (FHL). They include:

 

  • Claiming Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Business Asset Disposal Relief, relief for gifts of business assets and relief for loans to traders),
  • Entitlement to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
  • Profits earned from holiday lets count as earnings for pension purposes.

 

You will need to account for your holiday lets properties separately from any other rental properties and you will need to comply with the various FHL rules. They include:

 

  • The property must be in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway;
  • The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture provided;
  • The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs, but did not make a profit, the letting will still be treated as commercial;
  • All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

There are also strict rules on occupancy. To secure the FHL tax benefits you will need to let your FHL for a certain, minimum number of days each year. The occupancy rules, set on a tax year basis, are:

 

  • Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
  • You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight.

If you do not let your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold.

As you can see, there are a few hoops to climb through to achieve FHL status, but the tax rewards for doing so are significant.

Latest Blog
12
Apr

Boost for small businesses

In a recent press release, HMRC underlined the benefits to smaller businesses from th...

Read More
09
Apr

A new acronym

Most readers of our posts will recognise the acronym CGT or IHT -Capital Gains Tax or...

Read More
05
Apr

Tax Diary April/May 2024

1 April 2024 – Due date for corporation tax due for the year ended 30 June 2023...

Read More
05
Apr

Still time to register for the Marriage Allowance

There is still time to register for the marriage allowance before the current tax yea...

Read More