31 May 2022

The tax basics for holiday let owners

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Do you know the rules and regulations around owning a Furnished Holiday Let?

If you are a holiday let owner, you likely will have heard the term. It refers to a property rented out to holidaymakers on a short-term basis, for less than 31 consecutive days.

In order for a property to qualify as a FHL, there are strict rules to adhere to, such as:

  • The FHL must be furnished and let commercially.
  • The property must be available during the relevant period (see below) for commercial letting by members of the public as holiday accommodation, generally for 210 days or more per year. This is known as the availability condition.
  • The property must be let (ie actually booked) as holiday accommodation to members of the public for 105 days or more per year (excluding periods of longer-term occupation, these being continuous periods of more than 31 days during which the accommodation is in the same occupation, other than in some exceptional circumstances). This is known as the letting condition.
  • The property must not be let for periods of longer-term occupation (as defined above) for more than 155 days. This is the pattern of occupation condition.

Meeting these conditions offers a number of tax benefits compared to renting out your property to longer term tenants, including:

  • Capital Gains Tax (CGT) relief on disposal.
  • Business Asset Disposal Relief. When the property is sold, gains are charged at 10% rather than 18% (or 28% for higher rate tax payers).
  • FHLs can qualify for Business Asset Rollover Relief and gift tax relief.

Additionally, FHL owners, whilst trading, can make use of capital allowances on new equipment such as beds and fridges. What this means is that owners can write off the full cost of such purchases against their tax liability. For a normal domestic rental property, the initial purchase of these items would be classed as capital and there would be no deduction.

If you currently have a property and are considering renting it out, thinking about the tax implications, and benefits, is important. Speak to an expert, such as eviivo partner AIMS Accountants for Business. They have written a handy guide to the tax benefits and implications of running an FHL, outlining the current legislation affecting this growing business sector. Take a look at AIMS’s blog post here.

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