Furnished holiday Lettings – A tax efficient alternative?

Published on 14th December 2018

Landlords have been subject to several significant tax changes in recent times, including restrictions to the allowability of finance costs for tax purposes, which are being phased in between 2017/18 and 2020/21. Many are contemplating the potential advantages of furnished holiday lettings (FHLs). Here we outline some key areas to consider.

Meeting the conditions

Lettings are defined as FHLs according to a number of conditions. They must be:

  •   within the UK or the European Economic Area
  •   run as a business with a view to making a profit
  •   furnished sufficiently for normal occupation

In addition, an FHL property must also pass the three qualifying tests applied to the relevant 12-month period:

  •  Availability: the property must be available for commercial letting as holiday accommodation to members of the public for at least 210 days;
  •  Letting: the property must be commercially let as holiday accommodation to members of the public for at least 105 days – excluding any ‘period of longer term occupation’ (over 31 continuous days); and
  •  Pattern of occupation: total periods of longer term occupation must not exceed 155 days.

The relevant period is usually the tax year, unless the date of starting or ceasing trading falls within that year.

Some advantages of FHLs

With all these stipulations, you might be wondering what the benefits could be to make this a worthwhile move. Potentially, though, there are a number – and particularly with regards to tax. In contrast to buy-to-let, under FHL rules:

  •  Capital allowances can be applied to items such as furniture and fixtures
  •  Profits can count as relevant UK earnings for pensions relief
  •  Capitals gains tax reliefs such as business asset roll-over and Entrepreneurs’ Relief can be claimed
  •  There is no restriction on the deductibility of related mortgage interest incurred
  •  Where the availability of services is nearer to hotel facilities, there may be the possibility of Business Property Relief for Inheritance Tax but this is judged on a case
    by case basis.

We can advise on all areas of tax and property. Please contact us on 01392 211233  for advice that is tailored to your individual circumstances.