The furnished holiday let (FHL) rules allow holiday lettings of properties that meet certain conditions to be treated as a trade for some specific tax purposes. Individuals, partnerships, trustees and companies who let furnished holiday accommodation situated within the UK or elsewhere in the EEA can benefit from having a FHL. HMRC’s guidance on the scheme has recently been updated.
Landlords of furnished holiday lettings are not affected by the new rules, introduced this tax year, that are gradually restricting tax relief on mortgage costs for residential properties to the basic rate of tax. This increases the tax benefits of the FHL scheme, however careful consideration must be given to help decide whether a furnished holiday let is a good investment.
In order to qualify as a furnished holiday lettings, the following criteria need to be met:
- The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
- The property must be located in the UK, or in a country within the EEA.
- The property must be available for commercial letting at commercial rates for at least 30 weeks (210 days) per year.
- The property must be let for at least 15 weeks (105 days) per year and home owners should be able to demonstrate the income from these lettings.
- The property must not be used for more than 155 days for longer term occupation (i.e. a continuous period of more than 31 days).
Planning note: Where there are a number of furnished holiday letting properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 15 weeks threshold. There is a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the furnished holiday let rules where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.
Where the qualifying conditions are not met during the relevant period, the furnished holiday lettings rules do not apply for that tax year or accounting period. In that situation, the normal property income rules will apply for that tax year or accounting period.
Property owners considering the use of this scheme will need to monitor their lettings in a tax year to make sure they still qualify for the FHL tax advantages. If you presently have a FHL business, and would like help with these planning issues, please call.