Skip to content 
What are the tax benefits of a furnished holiday let?
In locations with a demand for vacation housing, a furnished Holiday Let may be a more tax-efficient option than buy-to-let.
As a consequence of changes to buy-to-let tax relief, many landlords search for methods to increase their tax efficiency. In locations with a demand for vacation housing, a furnished Holiday Let may be a more tax-efficient option than buy-to-let.
How can you know whether you have an FHL? HMRC considers FHLs a trade; hence they are categorised separately from residential and commercial properties. FHL properties have specific taxes and tax perks. The following are FHL property requirements.
Property must be
- either in the United Kingdom or somewhere else in the European Economic Area.
- Furnished There must be adequate furniture for regular occupancy, and guests may utilise it.
- Pass all of the occupancy tests (see below).
If you lease the property out of season to cover expenses but didn’t earn a profit, the letting is still considered commercial.
FHL properties must meet all three occupancy requirements. For a continuous let, use the tax year, 6 April to 5 April. Apply the tests to a new let’s first 12 months and final 12 months.
How to identify a furnished holiday rental
- The condition linked to the trend of occupation
If your property has more than 155 days of lettings longer than 31 days in a year, it won’t be an FHL.
- Availability
At least 210 days out of the year, your home must be open for business as a fully furnished vacation rental in order to qualify for this scheme.
- Lease terms
At least 105 days out of each year, the property has to be rented out to paying customers as a fully furnished vacation rental.
What are the Benefits of Renting a Holiday Home That Is Already Furnished?
Furnishings are tax-deductible: You are eligible to make a claim for capital allowances on your FHL property. This implies you may deduct the expense of luxury furnishing your cottage from your pre-tax earnings. Long-term rentals aren’t eligible.
Pension contributions: You are eligible to make tax-favoured pension contributions if you have relevant earnings,’ which are defined as income derived from an FHL property and considered to be “relevant earnings.”
What happens when you finally decide to sell your FHL property?
When the time comes for you to sell your FHL property, you may be eligible to claim certain reliefs from the Capital Gains Tax (CGT). Long-term rental houses cannot have:
Entrepreneur’s Relief
Roll-over Relief
Hold-over relief
Split the profits between your husband/wife
When it comes to properties that are rented out on a long-term basis, earnings are shared in accordance with the official ownership split. For instance, if you owned fifty per cent of the property, you would be entitled to fifty per cent of the profits. With an FHL property, you may divide the earnings according to everyone’s beneficial interest or the actual effort done in leasing the property if there’s enough documentation.
Mortgage Interest Relief
The fact that one may deduct the whole amount of mortgage interest paid is by far the most significant advantage. Unlike other residential property rentals, for which relief is limited.
What are the disadvantages of a furnished holiday home?
VAT: If the turnover from your FHL property portfolio is more than the VAT threshold, which is presently set at £85,000, then you will be required to become VAT-registered. This is the case for all types of holiday accommodations.
Losses: It is not possible to deduct losses sustained by an FHL or other property businesses from other sources of revenue; rather, these losses are carried forward and deducted from future earnings. Losses may compound over the years.
Participation: When it comes to FHL, there is a greater amount of day-to-day labour involved since you are expected to check the days that are rented for, ensuring that you market it and fill it for the necessary days. It’s time-consuming.