Landlords who let Furnished Holiday Lets (FHLs) can benefit from certain tax advantages. The rules that apply to FHLs are distinct and separate from the rules applying to the letting of residential property more generally.
Furnished Holiday Lettings – Conditions
For a property to qualify as an FHL in the tax year, all of the following conditions must be satisfied:
- The property is furnished.
- The property is located in the UK or the European Economic Area (EEA).
- The property is available for commercial letting as holiday accommodation to the public for at least 210 days in the relevant period (typically the UK tax year).
- Of the 210 days, the property is actually let out for at least 105 days as holiday accommodation.
Certain restrictions apply for longer term occupation, and a property will not be regarded as holiday accommodation for periods where it is let continuously for more than 31 days to the same occupiers. Any such periods of long term occupation should not exceed a total of 155 days in the tax year.
Where a property fails to qualify because it was not actually let for enough days (but did qualify in the previous tax year), and there was a genuine intention to meet the letting condition, the taxpayer can make a Period-of-Grace election for up to two years to allow the property to continue to qualify as an FHL.
Tax Advantages of FHLs
It is generally advantageous for a property business to qualify as an FHL business, for the following reasons:
- Furniture and furnishings can qualify for capital allowances, along with plant and machinery used outside the property (vans, tools etc.).
- An FHL business is eligible for Rollover Relief for Capital Gains Tax.
- The restriction that applies to finance/mortgage interest costs on property businesses, does not apply to FHL businesses, meaning such costs obtain full tax relief in the computation of profits of an FHL business.
- In certain cases it can qualify for Business Property Relief (BPR) for inheritance tax purposes.
- You may be able to make a claim for Business Asset Disposal Relief (formerly Entrepreneurs' Relief) on a sale.
FHLs and Covid-19
HMRC has provided the following guidance on how the FHL rules should be interpreted where an FHL business was unable to operate normally due to the Covid-19 restrictions in 2020/21:
a) For the tax year 2020-21, the 210 day availability condition is satisfied if the taxpayer has made the property available for letting as an FHL, for at least 210 days in the year even if Covid-19 restrictions prevented the property from being used.
b) When considering a period of grace election for 2020/21, and whether there was a genuine intention to meet the letting conditions (for example cancelled lettings due to "unforeseen circumstances"), unforeseen circumstances include where the letting condition is not met due to Covid-19 measures such as enforced closure due to a lockdown or travel ban.
Conclusion
In many cases, operating an FHL business is more advantageous than operating a standard property letting business, so ensuring that the RHL qualifying conditions are met is important. The rules here can be more complex than they appear, so expert tax advice should be sought if there is any question as to whether the property qualifies.
If you require advice on running your property letting/FHL business tax effectively, please
contact a member of
our team.
https://pd-taxconsultants.co.uk/availability-of-business-property-relief-on-furnished-holiday-lettings/
https://www.stratostax.co.uk/insights/for-what-its-worth-valuing-property-investment-companies/
https://www.stratostax.co.uk/insights/graham-v-hmrc-a-rare-tax-win-for-holiday-lets/
