Furnished Holiday lets

As popularity increases, it’s crucial to ensure you’re paying the correct amount of taxes to fully benefit from this trend.

Demand for short-term holiday accommodation in the UK is growing, with users expected to reach 16.59 million by 2028 (source: Statista). However, profits from furnished holiday lets (FHLs) can be taxed as high as 60% for individuals in some circumstances. As popularity increases, it’s crucial to ensure you’re paying the correct amount of taxes to fully benefit from this trend.

Fortunately, FHL owners currently enjoy several tax advantages, including:

  • Ability to claim capital allowances on part of the purchase price paid for the property or the development costs to build or refurbish it
  • Full deduction of interest on borrowings against taxable profits
  • Beneficial capital allowances for fixtures and fittings
  • Various capital gains tax reliefs, such as business asset disposal relief, rollover relief, and gift hold-over relief
  • Profits from FHLs count as relevant earnings for pension purposes
  • Income from jointly owned FHLs by married couples or civil partners isn’t subject to the 50:50 income tax split

How to qualify for holiday lets

To qualify as a Furnished Holiday Let, your property must meet the following three criteria:

  1. Furnishing Requirements
    • The property must be fully furnished. There are no specific rules on the extent of furnishing, but it if you include everything you would expect in a self-catering holiday home you should be along the right track.
  1. Profit Intent
    • The property must be rented out with the aim of making a profit. It doesn’t need to actually make a profit, but you should show clear intent, such as having a business plan or listing the property with a professional holiday letting agency.
  1. Availability and Letting Conditions
    • Availability: The property must be available to let for at least 210 days (30 weeks) in the first 12 months.
    • Commercial Letting: The property must be let commercially for at least 105 days (15 weeks) in the first year.
    • Pattern of Occupation: The property should not have more than 155 days of long-term lettings (over 31 continuous days by the same person/people) in a year.

To ensure you are meeting the right criteria to qualify contact us to speak to one of our property tax experts. 

Government Abolishes FHL Tax Benefits in 2024 Budget

On March 6, 2024, the Government announced the abolition of the FHL tax regime in the Spring Budget. This move aims to level the playing field between landlords of short-term holiday properties and those renting out residential properties to long-term tenants. The change is expected to significantly impact those running holiday let businesses, especially larger operations.

Impact of Abolishing the FHL Regime

The key impacts of this change include:

  • Removal of business asset rollover relief, effective April 2025, preventing deferral of gains from selling an FHL property.
  • Business asset disposal relief (BADR) will no longer be available, leading to higher capital gains tax (CGT) rates of up to 24% from April 2025.
  • Ending gift hold-over relief, also from April 2025, impacting tax-free gifting of FHL properties.
  • Changes to capital allowances for fixtures and fittings within FHL properties, potentially leading to a clawback of previously claimed allowances.

Planning Ahead

With these changes taking effect from April 2025, it's crucial for FHL owners to seek advice and plan for potential higher tax liabilities. For more information on how these changes might impact your business, please contact us at Elite Financial Accounting.