The summer season is upon us – which, for many, means it’s time to take a well-earned holiday! Unsurprisingly, the holiday homes market is a profitable one, and more and more UK taxpayers are considering a furnished holiday let because of the additional tax advantages.
What Are the Tax Advantages of a Furnished Holiday Let?
As long as certain conditions are met (more on that below), owning a furnished holiday let can lead to special tax reliefs. These tax reliefs were introduced as an incentive to revitalize the British holiday market, and as such are not generally available to residential landlords.
Furnished holiday lettings are treated as a trade by HMRC. Qualifying properties can benefit from the following reliefs:
- Profits are treated as earnings for pension purposes.
- Capital allowances. Allowances can be claimed for the cost of equipment that is used for running the furnished holiday letting business, as well as fittings or equipment that is used within the property itself.
- Reduced capital gains. Furnished holiday lettings benefit from CGT reliefs for traders, which include: entrepreneurs’ relief; rollover relief; holdover relief; and relief for gifts of business assets.
Can My Property Be Classed As a Furnished Holiday Let?
In order to qualify, the letting must past various tests:
- The property must be in the UK or the EEA (European Economic Area). This condition may change, depending on the effects of Brexit.
- The property must be fully furnished. Though the rules do not specify how much furniture the property should contain, it must be sufficient for normal use – and your visitors must be entitled to use it.
- The property must be let on a commercial basis. In other words, your property must be let with the intention of making a profit. This doesn’t mean that you will actually make a profit, but you need to be able to prove that you intend to make a profit but managing the letting like a proper business.
- The property must be available to let for at least 210 days a year. In order to qualify, the property must be available to let for at least 210 day per year (30 weeks); and must be let out on a commercial basis for at least 105 days a year (15 weeks). Please note that that longer-term lets of more than 31 days do not count; neither do any days on which you let the property to family or friends at a reduced rate.
- The property must be let on a short-term basis. To be classified as a furnished holiday let, the property must not be rented for more than 31 days to any group or individual.
- Your property must be strictly available to let to tourists and holidaymakers. This might sound a little vague, so we highly recommend instructing a qualified tax professional to advise you on the particulars of your property. In essence, however, the rule means that the furnished holiday let should be widely available to tourists (rather than being rented out to local individuals or businesses, for example).
If you’re considering expanding your property portfolio at home or abroad, don’t hesitate to turn to IBISS & Co’s experienced team. We will work hard to devise a beneficial strategy that minimises your tax exposure by taking advantage of all possible reliefs. Contact us today for a no-obligation discussion about your plans.