The UK has seen a boom in the ownership of Furnished Holiday Lets thanks to the increase in staycations.
As the summer holidays draw to a close many of us may be considering purchasing a holiday let to boost our income, but there are some very specific tax reliefs to consider when doing so.
What is a Furnished Holiday Let?
These types of properties are considered separate from other residential and commercial properties by HM Revenue & Customs (HMRC) and are classified as trading businesses.
To qualify for the tax benefits that come with this, your holiday let must be actively promoted and let commercially, be furnished for normal occupation and be operated with the intent of making a profit.
It must also:
- Be available for commercial holiday letting to guests and holidaymakers for at least 210 days (30 weeks) per year; and
- Not be rented out by the same person for more than 31 days: and
- There shouldn’t be more than 155 days (+22 weeks) of this type of ‘long-term’ occupation per year; and
- It must be rented out as holiday accommodation to the public for at least 105 days (15 weeks) of the 210 days you have made it available.
If you or your family use the property this doesn’t count towards this total.
How are Furnished Holiday Lets taxed?
The profits arising are taxed as income in the same way as any other trading business. Generally, the rules for allowable expenditure are more generous than for normal residential lets. In addition, the profits count as earnings for pension purposes.
Capital Gains Tax (CGT) reliefs can also be applied when a property is sold or transferred, including:
- Rollover Relief
- Gift Relief
- Business Asset Disposal Relief
Owners of Furnished Holiday Lets can also benefit from some capital allowances, such as the Annual Investment Allowance, on certain assets used and fixtures inherent in the property. Capital allowances are deducted in arriving at the taxable profit.
Where a Furnished Holiday Let is owned jointly by a married couple, there is more flexibility around how the profits are allocated than for a normal residential let.
Links: Furnished Holiday Lettings