Furnished Holiday Lettings: Benefits for income tax

Published on 31st July 2018

FHLs are entitled to claim capital allowances on purchases of new items such as furniture, white goods, soft furnishings, and plant and machinery such as radiators, toilets,
lawnmowers, tools, etc. Whereas standard investment properties can only claim tax relief on replacement of items. This means that you can obtain tax relief on initially  furnishing and kitting out the FHL, or if you are looking to upgrade the FHL to attract higher letting rates. Profit derived from FHLs is, for tax purposes, treated as earned income. This is important if you wish to make pension contributions, because the amount that can be paid into your pension is dependent upon the level of your earned income.

For these purposes all UK based FHLs are treated as one business and any FHLs located in the EEA are treated as another. Unlike with residential investment properties, there is no restriction on mortgage interest relief which can still be claimed in full for FHL.