In this article we explore the many benefits of offering your rental home as a furnished holiday let (FHL).
What is a Furnished Holiday Let?
A Furnished Holiday Let (also known as a ‘FHL’) is a certain type of rental classification that allows you to take advantage of tax rates if you let out a holiday home for at least 105 days a year.
There are also specific requirements a property needs to meet in order to be classed as a ‘FHL’.
What are allowable expenses?
When it comes to expenses, your FHL property is treated similar to that of a business. This basically allows you to offset expenses against your revenue:
Expenses claimed must be against commercial use only. If you, your family or friends use your property, your expense will be partly considered as ‘private use’. This means you will need to calculate what percentage of the expense is commercial.
Expenses must not be capital. For example, one-off payments for the purchase of the property, or for its fixtures (capital allowances could cover these expenses).
Examples of allowable expenses:
• Utility bills
• Interest on loans associated with the property
• Letting agency fees
• Products bought for the property (cleaning products and welcome packs)
• Cleaning costs
How to qualify
1. Your property must be in the UK or the EEA (European Economic Area).
2. Your property must be fully furnished: This seems pretty obvious, however, as the rules do not say ‘to what extent you must furnish your holiday let’, we suggest you furnish to a level that would be acceptable to travellers/guests, and as part of our management service, we offer advice on how best to style your holiday home.
3. Your property must be commercially let: Your property must be available to let for a set number of days per year; Let for at least 210 days of the year (30 weeks) and Rent out on a commercial basis for at least 105 days a year (15 weeks).
4. Your property must be available to let for a set number of days per year: Let for at least 210 days of the year (30 weeks). Rent out on a commercial basis for at least 105 days a year (15 weeks).
Do not count long-term lets of more than 31 days and any days when you let the property to friends or relatives at no cost or reduced rates, as this is not a commercial let
What are the advantages of a Furnished Holiday Let?
Letting out a holiday home can be a very profitable venture. Not only do you get a holiday home that pays for itself, but you also get a home that you, your family and friends can enjoy during the holidays.
Say Bye-Bye to Council Tax
Self-catering accommodation which is available for short-term lettings for more than 140 days in any given year, is subject to business rate property tax. Since all FHL properties must be available to let for a minimum of 210 days, they fall into this category. Your business rates will almost always be cheaper than council tax. So, bye-bye Council Tax!
Furnishing your holiday let can be tax efficient
Capital allowances can be claimed on your FHL property. This means the cost of furnishing your holiday let can be deducted from pre-tax profits.
If you qualify
You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, Relief for Gifts of Business Assets and Relief for Loans to Traders)
You are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
The profits count as earnings for pension purposes
In order to qualify for the above, the holiday let must be available to let for at least 210 days a year and rented on a commercial basis for at least 105 days a year.
Split the profits
If you share the ownership of your FHL with your husband or wife, profits can be distributed between you both for tax purposes.
Claim any profit/loss against income tax
The profit you take from your holiday home will be taxed as income. You will continue to pay your current income tax rate unless the profit from the holiday home takes you over the threshold.
What are the potential disadvantages of a Furnished Holiday Let?
If your turnover from your FHL property exceeds the VAT threshold, you will need to become VAT registered. If you own an individual FHL property, to exceed the current VAT threshold you will need to let your property for over £1,500 per week, for the entire year. In our experience, you won’t be renting out your holiday let for the entire year which means you’ll hopefully be under the VAT threshold.
If you run a separate business and are a VAT registered individual, your FHL property income may be subject to VAT also. For more information on VAT, see here.
Losses cannot be offset against other taxable income
Losses from FHL business cannot be offset against other income, instead, FHL losses are carried forward and offset against future profits. These losses can accumulate and be carried across multiple years.
Check out this helpsheet for further information
.. and for more information on FHL requirements, view the HS253 Helpsheet.
We are an established letting agent offering both holiday let management and residential management services to local owners.
Should you wish to discuss any of the above or want to ask any questions relating to your rented home, we would be happy to talk with you. Please contact the office on 01382 540545, alternatively you can email us at email@example.com.
You can find our holiday let apartments on booking.com, holiday lettings, homeway and airbnb. We are currently working on linking the first three holiday let portals to logos but check out our airbnb profile to get an idea on what we have to offer, plus, you can contact the agent direct to, for any enquiries 🙂