UK: tax & Furnished Holiday Lettings

What are the tax implications of Furnished Holiday Lettings in the UK?

• To work out your taxable profit you deduct your allowable expenses from your gross rental income. These include:

  • Letting agent fees (where applicable)

  • Legal and accountant fees

  • Buildings and contents insurance

  • Interest on mortgage payments

  • Maintenence and repair costs (but not improvements)

  • Utility bills

  • Council Tax

  • Additional services paid for, such as cleaning or gardening

  • Costs related to letting the property, such as phone calls, advertising and stationery

• You then deduct capital allowances for the cost of each item of furniture or plant/machinery you provide in the property. The amount you can claim does vary from year to year depending on government policy - so always check before making a claim. But for the tax year 2010/11 you may be able to claim up to 100 per cent of the first £100,000 of expenditure. You can then claim 18 per cent of what's left each year after the initial year of purchase.

• For the tax years 2009/10 and 2010/11 you may also be able to claim up to 25 per cent or more of the original purchase price of the property for the integral features built into the property, and this is in addition to the capital allowances for furniture and other equipment. For more information, please refer to the blue box at the bottom of this page.

• You may be able to claim 100 per cent for some environmentally friendly purchases. More details can be obtained from the tax authorities.

• Alternatively, you can claim a renewals allowance. This covers the cost of replacing furniture or equipment. To calculate this you deduct from the cost of the new item:

  • The amount you sold the original item for (if anything)

  • Anything extra you paid for a replacement

• Once you make a choice as to which kind of allowance you will use, you must stick to this decision in following years.

Declaring rental income and expenses

• You need to declare rental income using the land and property pages of your Self Assessment tax return.

• To complete the pages you need to keep the following paperwork:

  • A note of all rent received and dates the property is rented out

  • Sales receipts, invoices and bank statements

  • A record of business expenses (these are explained in the land and property pages help notes)

• All these records will need to be kept for six years after the tax year concerned.

If you make a loss

• If you made a loss on the property during the last four years, you can offset this against any other income to claim tax back or reduce your overall tax bill.

• From the tax year 2011/12 you can carry the loss forward and offset it against future lettings profits.

• More information on offsetting your losses can be found in the help notes in the land and property pages of your Self Assessment tax return.

CGT and your Furnished Holiday Letting

• If you come to sell your property used for Furnished Holiday Lettings in the UK, you may benefit from certain Capital Gains Tax (CGT) reliefs.

• You may be able to benefit from business asset roll-over relief when you sell your holiday home.

• For example, if you reinvest in another UK holiday letting property that costs the same as, or more than, the original property within three years of selling, you may be able to defer paying CGT until you sell the new property.

• You may also benefit from Entrepreneurs' Relief when selling your holiday let as it is treated as a business asset. This means you benefit from the business rate of CGT, which equates to 10 per cent on the first £1m of gains, rather than the personal rate of 18 per cent.

• Entrepreneurs' Relief replaced Business Asset Taper Relief, which was abolished in April 2008.

  Disclaimer: Holiday Lettings is not a financial advisor or accounting firm and does not offer formal financial or tax advice. You should consult your financial advisor and/or accountant before acting on any of the information or services presented above.