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Tax Benefits

Furnished Holiday Letting: The Benefits

  • Entitlement to machinery and plant capital allowances on furniture, furnishings etc in the let property, as well as on machinery and plant used outside the property (such as vans and tools)
  • Losses can be set against your total income and are not restricted to the rental business
  • Furnished holiday lettings are treated like trade for loss purposes and get the same loss relief's as trades. If your losses exceed your income you can also choose to set your losses against your capital gains - see your professional adviser or tax office for further details
  • Capital gains tax relief's such as business asset roll-over relief and taper relief

Business asset roll-over relief and taper relief

Business asset roll-over relief allows you to defer the gain on the disposal of a business asset when you acquire another business asset. You can claim relief if you are carrying on a business of furnished holiday lettings. If you use the whole amount you receive from the disposal of old assets to acquire new assets, the whole of your gain will be deferred by deducting it from the cost of the new assets. If you use part of the amount you receive for the disposal of the old assets and that part includes some of the gain you made, you will get relief for the part of the gain you have used. You deduct that part of the gain from the cost of the new assets. "Furnished holiday letting activities benefit from generous tax relief's - provided that they fall into the tax man's definition" comments Julian Smith, Director of Private Client Services at Princecroft Willis. This covers UK properties that are let furnished on a commercial basis so long as they are available for letting for at least 140 days in a year and actually let for at least 70 days in that period. There are also restrictions on longer term lets.

Where all of these criteria are met, which is an area that Bournecoast Holidays specialise in, the activities are treated as a trade for income tax and capital gains tax purposes. As an example, any capital gain will be taxed at a maximum rate of 10 per cent after 2 years of ownership. You can even postpone the tax if the proceeds are reinvested in qualifying replacement assets including another furnished holiday let.

Inheritance Tax

The special treatment does not extend to inheritance tax but complete relief from this tax may be available where the lettings are short term and the owner is "substantially involved" with the holidaymakers. The owner may use an agent, which the taxman suggests should be a relative or a housekeeper. However, a commercial agent such as Bournecoast may well be able to provide a restricted ongoing service if inheritance tax relief is sought in addition to the other relief's.

Please note that all details printed within these pages are for information purposes only and are not to be taken as Financial or Tax Advice. To obtain Financial Advice or Tax Advice you will need to speak the relevant specialists about your particular circumstances.

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Bournecoast Ltd
26 Southbourne Grove
Tel: (01202) 437 888
Fax: (01202) 437 889