Furnished Holiday Letting (FHL) is a separate category of properties apart from residential and commercial properties. HMRC deems FHLs as a trade – as appose to investments in many other cases.
Some FHL properties that meet specific qualifying conditions could get additional tax benefits compared to other lettings.
In order to qualify as FHL, the property (furnished) must be available for commercial lettings as holiday accommodation to the public for at least 30 weeks (210 days) of the tax year. And, the property must be let for at least half of this period. Any longer-term lets (more than 31 days) to friends or family is not counted towards the 105 days. All lets must be done on a commercial basis. For example, there must be an intention to make a profit through a commercial let.
Tax benefits
Depending upon your business structure, there could be several tax benefits, such as:
- Losses from the Furnished Holiday Letting could be offset against your other personal income where it is owned personally.
- Capital allowances can be claimed. This means the cost of furnishing your FHL for could attract low tax bill, as these are deducted from your pre-tax profits.
- Assets disposals may still be eligible for Business Assets Disposal Relief which otherwise may be restricted for the other property letting business. If qualified the tax rate is fixed at flat 10%, which could otherwise be between 18% – 28%.
- Business could also be eligible for Roll-over and Hold-over relief.
- Normally no council tax is paid, whilst business rates (which may be lower) would still be eligible.
- Pension contributions could also be made out of the income generated from FHL because they are classed as relevant earnings.
- Unlike buy-to-let landlords, whose relief for mortgage interest is starting to taper off, owners of FHL can offset all their interest costs against business profits. This could lead to significant reductions in taxable profits.
It is also important to take VAT into consideration. If your Furnished Holiday Letting income exceeds the VAT threshold (currently £85,000), you will need to register for VAT.
Contact Fusion Business Services today
We provide specialist landlord accountancy services, including a dedicated service for Special Purpose Vehicles and for landlords who manage their buy to let portfolio with self-assessment. For more information, please give us a call on 0800 2294020 or complete the short form on this page. Alternatively, you can request a free consultation at a convenient time.
