WHAT IS A FURNISHED HOLIDAY LET?

A Furnished Holiday Let (FHL) is a type of rental property that had to meet strict HMRC rules to enable it to qualify for beneficial tax treatment.

If you let properties that qualify as FHL:

• you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
• you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
• you can claim the full amount of holiday let mortgage interest against the rent
• the profits count as earnings for pension purposes

To benefit from these rules, you need to work out the profit or loss from your FHLs separately from any other rental business, such as buy to let.

What does fully furnished mean?

Here are the basic points needed to meet FHL criteria.

• Your holiday let property needs to be located in the UK or European Economic Area (EEA). There’s no specific HMRC conditions on the type or style of property.
• The property must be let out to paying guests with the aim of making a profit. It is the intent that is most important here rather than the actual outcome.
• Your holiday home will need to be fully furnished to a good standard and ready to accept guests.
• The property must be available for letting as a furnished holiday let accommodation for at least 210 days in the year.
• You must actually let the property to paying guests for at least 105 days in the year out of the 210 days it was available.
• Generally speaking only lets of 31 days continuous duration or less qualify. If lets of more than 31 days do occur there should not be more than 155 days of this type of longer term occupation each year.

Holiday Let allowable expenses

A furnished holiday let is treated as a business by HMRC for tax purposes whereas a buy to let is regarded as an investment. Owners of qualifying holiday lets can deduct the full cost of their mortgage interest against income. The running expenses relating to the property can also be taken into account when calculating your taxable profits.

If you intend to own, or currently own, a property that is let out as a holiday home it is important to understand that you do not have to comply with the above rules. (You just won’t receive any of the tax breaks).

Where a second property is occasionally let out and used mostly for family holidays it simply won’t qualify as a Furnished Holiday Let.