If you intend to let your property out as holiday accommodation, you may be able to treat it as a furnished holiday letting (FHL) instead of a normal let.
This can be a tax efficient way to let out a property although a lot of the advantages which used to apply to this type of letting have been removed over the past few years.
To qualify for FHL treatment certain conditions must be met. These include the property being available for letting for at least 210 days in each tax year and being actually let for 105 days.
A summary of the advantages and disadvantages can be found below:
- Full tax relief is available for interest expenses incurred for FHLs unlike other rental lettings where from 2017/18 interest relief will begin to be restricted.
- Capital allowances can be claimed on both integral features and furniture items.
- Entrepreneurs’ relief may be available which will reduce the Capital Gains Tax (CGT) rate from 28% to 10% when the property is sold. Other capital tax reliefs may also apply.
- Profits from a FHL are treated as “relevant earnings” for pension contribution purposes unlike other rental or investment income.
- You will be able to take a holiday in your own property, or make it available some of the time to your family or friends. However, care would need to be taken to adjust the level of expenses claimed to reflect this private use.
- Holiday letting may have higher agents’ fees, advertising costs, and maintenance fees (for example more regular cleaning).
- Owning a holiday property may be more time consuming than you think and you may find yourself spending your precious holiday sorting out problems.
- FHL businesses are within the scope of VAT so care needs to be taken where the owner of the FHL business is close to the VAT threshold or already VAT registered.
If you would like any further advice in this area please get in touch with your local TaxAssist Account on 0800 0523 555.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.