What exactly is a furnished holiday let?
If you own a holiday let, in the UK or abroad, you must declare the income to HMRC even if you are making a loss.
Provided that you intend to make a profit, your holiday let may meet the criteria to be classed as a furnished holiday let (FHL) which has tax advantages over a standard let.
To qualify as a FHL your property must:
- be located in the UK or European Economic Area (EEA)
- be furnished adequately for occupation and all furniture must be available for guests to use
The accommodation must also pass these occupancy conditions:
Pattern of Occupation – Letting period should not exceed 31 days for any one guest
Availability – The property must be available to let for at least 210 days in the year
Letting – The property must be let for a minimum of 105 days in the year
If your property doesn’t meet ALL three conditions, there are 2 options that can help you reach the thresholds:
Averaging Election – if you own more than one property, you can add up the total number of letting days and divide by the number of properties to get the average letting days. If you have properties in the UK and EEA, you must calculate these as separate businesses.
Period of Grace Election – you must be able to prove that you had a genuine intention to let the property in the year. Examples of this would be marketing the property to the same level as previous years or where bookings have been cancelled due to unforeseen circumstances such as bad weather.
When you come to sell your holiday let, there are several tax advantages of being a FHL. As FHLs are classified as ‘business’ assets they are eligible for the following Capital Gain Tax business relief’s:
Entrepreneurs’ Relief – reduced rate of CGT to 10% payable on any capital gains arising on the disposal of the property
Gift Relief – which means that where a property is gifted the capital gain arising can be frozen and will only become liable to CGT on a subsequent disposal by the recipient
Replacement of Business Asset Relief – which allows a capital gain arising on the disposal of a FHL to be deferred by setting it against the cost of a replacement business asset acquired within three years of the disposal