Questions and Answers
Are furnished holiday lets treated differently to standard let property?
I am considering purchasing a rental property as an investment and have heard Furnished Holiday Lets are treated differently for tax compared to a standard let property. Can you explain some of these differences?
Last updated 14 Jul 2022 | First published 14 Jul 2022
By Catherine Heinen, FCCA 3 min read
Landlords
If you intend to let a property out as holiday accommodation, there are some important factors to consider:
- Treating your property as a Furnished Holiday Let (FHL)
- Abolition of the Furnished Holiday Let Scheme
- Ownership structure
- Taxation of rental income
Qualifying conditions for a furnished holiday let
In order for a furnished residential property to qualify as an FHL is must be let on a ‘commercial basis’ with a view to making a profit. It must also be furnished and be situated in the UK or a state in the European Economic Area (EEA) and meet certain tests with regard to days of availability and occupation.
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Or contact usAdvantages of Furnished Holiday Lets
Two of the key tax advantages of FHLs, compared to normal let properties, are:
- FHLs get full relief for mortgage interest payments
- FHLs can possibly qualify for a 10% tax rate on disposal – subject to a number of criteria being met.
Mortgage interest advantage of a furnished holiday let
Residential landlords of non-FHL properties are given relief for mortgage interest by way of a ‘tax reducer’ at the basic rate of income tax of 20%. For an FHL, no such restriction applies and they may take a full deduction from their rental profits of any interest borrowing costs they incur.
Capital taxes
Disposal of an FHL is generally eligible for Business Asset Disposal Relief (BADR), provided a number of qualifying criteria are met. Disposal of a general let property, such as a standard let residential property does not qualify for BADR and can attract a much higher CGT rate of tax on any gain on disposal.
A summary of the advantages and disadvantages can be found below:
Advantages of furnished holiday lets
- Full tax relief for interest expenses incurred for FHLs unlike other rental lettings.
- Capital allowances can be claimed on both integral features and furniture items.
- Ability to claim capital gains reliefs that normal lettings do not, including rollover relief, gift holdover relief and BADR.
- Profits from a FHL are treated as “relevant earnings” for pension contribution purposes.
Disadvantages of furnished holiday lets
- Holiday letting may have higher agents’ fees, advertising costs, and maintenance fees.
- FHL businesses are within the scope of VAT, so care needs to be taken when considering the VAT threshold.
Abolition of the Furnished Holiday Let Scheme
The Furnished Holiday Let Scheme will be abolished on 6th April 2025. The abolishment of the FHL scheme will mean the loss of advanatages that these properties currently receive, including:
- Restriction of interest and finance costs to 20% basic rate relief.
- No capital allowances available on the purchase of new capital items, instead replacement of domestic items relief will be available. There will be transitional rules for existing Furnished Holiday Lets with ongoing projects.
- On sale, access to CGT reliefs will not be available, except for transitional arrangements.
- Profits will not be "relevant earnings" when calculating maximum pension relief.
FHLs with losses to carry forward can be set these losses off against future years’ profits of a UK or overseas property business.
Other considerations when letting out a property
- When purchasing a property, you may want to consider the legal ownership of the property. This could be owned solely, jointly with another or by a company.
- When you rent out a property, you'll need to pay tax on the profits. Make sure you register for self-assessment in time to notify HMRC of your taxable income. There are lots of advantages to filing your tax return early, be organised and get it done sooner with our expert team.
How TaxAssist Accountants can help
TaxAssist Accountants offer a comprehensive range of services to landlords, property investors and developers. Call us today on 020 3988 0580 or fill out our online enquiry form to arrange a free initial consultation.
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Or contact usFrequently Asked Questions
When determining if repair costs can be included on your tax return, it's important to consider:
- What state was the property in when you purchased it? What it in a fit state for renting out, or was some of the work carried out to get it to a fit state?
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What type of property you are renting out? Furnished or unfurnished?
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Are the expenses you have incurred repairs to the building/furniture or improvements or enhancements?
For more information on how to proceed take a look at our detailed response on What tax relief can I claim on property repairs.
If you have sold a property, or are thinking of selling a property, you may need to report this to HMRC and pay Capital Gains Tax (CGT). Properties used solely as your main residence are unlikely to have a CGT liability and the sale probably won't need to be reported to HMRC. However, if the property was rented out you may need to take action. If you are a UK resident and there is a CGT liability on the property sale you will need to report this to HMRC within 60 days of completion. If you are non-UK resident, you will need to report the sale to HMRC within 60 days of completion whether there is a CGT liability or not. Speak to an accountant who can calculate your CGT liability, look at tax reliefs and prepare your return to HMRC.
Yes. From 6th April 2026, landlords with property income above £50,000 will have to consider Making Tax Digital (MTD) for income tax. If you have property income above £30,000 you will have to consider MTD for income tax from 6th April 2027 and above £20,000, from 6th April 2028.Find out more in our guide to MTD for landlords.
Last updated 14 Jul 2022 | First published 14 Jul 2022
This article is intended to inform rather than advise and is based on legislation and practice at the time. 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 article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Catherine Heinen, FCCA
Catherine is a qualified accountant and technical content writer with experience working at mutliple accountancy practices in the UK top 50 accountancy firms according to Accountancy Age. Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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