UK: Furnished Holiday Lettings

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UK: Furnished Holiday Lettings

For your holiday home to be considered a Furnished Holiday Letting for UK tax purposes it must meet the following criteria set out by the British government on

  1. Be situated in the UK or EEA (European Economic Area)

  2. Available for holiday letting to the public for at least 210 days of the year as of April 2012 (was previously 140 days)

  3. Occupied with paying guests for at least 105 days in the year as of April 2012 (was previously 70 days)

  4. Furnished so that guests can be accommodated without the need for extra furnishings

  5. Individual lets should not exceed 31 days and your holiday home must not be let to the same person for more than 31 days in the year

If you have any concerns over tax related matters, we advise you consult an independent financial advisor.

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

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

    • Letting agent fees

    • Legal and accountant fees

    • Buildings, contents and public liability insurance

    • Interest on mortgage payments

    • Maintenance 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. For more information, use the HMCR helpsheet.

  • For the tax years 2010/11 and 2011/12 you may also be able to claim up to 25 per cent or more of the original purchase price of the property as a tax allowance or capital allowance based on the integral features of the property. This is in addition to the capital allowances for furniture and other equipment. Currently, you can claim for the tax year 2010/11 and as of 6 April 2012, the tax year 2011/12. As this is quite a complex subject and much will be dependent on your personal circumstances, please refer to the blue box at the bottom of this page for more information.

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

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 running of your holiday let business during the last four years, you can offset this against any future profits from the same business as long as your property qualifies for FHL status in each year. This has been the case since the 2011/12 tax year.

  • 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 if you sell your holiday home and 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.

As of April 2012, a “period of grace” will be introduced to allow businesses that don’t continue to meet the actual let period for one/two years to elect to qualify throughout that period. This will essentially help those that struggle to meet eligibility criteria year on year, allowing them time to get back on track, supporting their ambitions to be a thriving holiday let business.

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.

You could be eligible to claim up to 25 per cent of the purchase price of your furnished holiday let from HMRC as a tax allowance by claiming capital allowances on integral features, a little known tax relief. Please don’t assume your accountant has done this on your behalf – you could be missing out on tax savings worth thousands of pounds.

Property tax specialists Hedge Tax Mitigation, will provide a free illustration, and will work with your accountant to help you claim what is rightfully yours.