Furnished Holiday Letting: The Benefits
Owning a holiday let can be very advantageous. Not only does it provide enjoyable holidays for your family and friends, it provides a potentially lucrative additional income. Here we explore the many benefits of becoming a Furnished Holiday Let (FHL) and explain how your property can qualify for this status.
What is a Furnished Holiday Let?
A Furnished Holiday Let, also known as a FHL, is a certain type of rental property classification in the UK and Ireland (and other European countries). This classification provides certain tax advantages to holiday let owners. There are specific requirements a property needs to meet in order to be classed as a FHL, such as its availability, actual bookings and level of furnishings. For further information please use the HMRC Helpsheets.
What are the advantages of a Furnished Holiday Let?
Kitting out your property can be tax redeemable
Capital allowances can be claimed on your FHL property. This means the cost of kitting out your cottage to a luxury standard (and in return, increasing your potential rental income) can be deducted from your pre-tax profits. This isn’t an option available for long-term rental properties.
For more information on capital allowances, view the HS252 Helpsheet.
Make tax-advantaged pension contributions
Income generated from a FHL property is classed as ‘relevant earnings’ which means you can make tax-advantaged pension contributions. For more information on this, see the HS253 Helpsheet
When you sell your property
If you should come to sell your FHL property, you are able to claim certain Capital Gains Tax (CGT) reliefs. These are unavailable to long-term rental properties and include:
Split the profits between your husband/wife
If you share the ownership of your FHL with your husband or wife, profits can be flexibly distributed between you both for tax purposes. With long-term rental properties, profits would be distributed according to the official ownership split (eg. If you owned 50% of the property, you would share 50% of the profits). With a FHL property, you can portion the profit however you decide. For more information, see here.
Goodbye Council Tax
A 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. However, this isn’t necessarily bad news as you can claim Small Business Rate Relief, which can be up to 100% (dependent on what area you are in). Therefore, goodbye to council tax! Find out more information on Small Business Rate Relief.
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.