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Owning a holiday home can be a very rewarding business. Not only does it provide a comfortable place to stay for yourself, family & friends, but it can also be a great source of income.

Understanding tax on holiday lets can be confusing so we’ve put together this easy-to-read guide to help you understand the benefits and tax relief you could enjoy from your Furnished Holiday Let.

What is a Furnished Holiday Let?

A Furnished Holiday Let (or FHL) is a certain category of rental accommodation in the UK, Ireland & other European countries. To qualify as a FHL your property must be:

  • Furnished to a sufficient standard – there are no set rules on how much furniture to provide but if you supply everything you would normally expect from a self-catering property then you’ll be on the right lines
  • Commercially let with the intent to make a profit
  • Available to be let for at least 210 days (30 weeks) of the year – 105 of which must be commercially let to paying guests (if you use the property yourself or allow family/friends stay at a discounted rate, this does not count towards the total occupation requirements)

Your property will cease being a Furnished Holiday Let if it is either sold, or used for private occupation.

For more information about the requirements for a FHL, take a look at the HS253 Helpsheet.

Modern living room with bright patio doors

What are the benefits of owning a Furnished Holiday Let?

1. Deductible holiday let expenses

Capital allowances can be claimed on your Furnished Holiday Let, including your furniture, fixtures & fittings. If you kit your FHL out to the highest possible standard throughout (in turn increasing your potential income) all this can be deducted from your pre-tax profits.

You can find more information on capital allowances on the HS252 Helpsheet.

2. Tax-advantaged pension contributions

Income from a Furnished Holiday Let counts as ‘relevant earnings’ which, as a result, means you can make tax-advantaged contributions into your pension.

HMRC can provide more details on this on their HS253 Helpsheet

3. What happens when you sell your property

If you sell your property, you are able to claim Capital Gains Tax relief, which are unavailable to long-term lets. These include:

  • Entrepreneur’s Relief – you’ll pay tax at 10% on all gains on qualifying assets
  • Business Asset Roll-over Relief – you may be able to delay paying Capital Gains Tax when you sell your property & use all or part of the proceeds to purchase a new holiday home
  • Gift Hold-over relief – you could be able to claim Gift Hold-Over Relief if you give away your holiday property or sell it for less than it’s worth to help the new buyer

4. Split your tax between partners

If you share ownership of your FHL with a partner or spouse, you can split the profit however you like for tax purposes, regardless of how the ownership of the property is split.

5. Small Business Rate Relief

Any self-catering accommodation that is available to let for 140 days or more per year is subject to Business Rate tax. As FHL’s must be let for at least 210 days in a year, they automatically fall into this category. You may, however, be able to claim Small Business Rate Relief which will reduce the amount of council tax you need to pay. If your property’s rateable value is less than £15,000 you will be eligible for Small Business Rate Relief – you can calculate your property’s rateable value online with HMRC.


Paying VAT on a Furnished Holiday Let

If the turnover on your FHL exceeds the VAT threshold, you will need to become VAT registered. Currently, the threshold is set at around £7,000 per month, which most holiday lets are unlikely to achieve unless it’s a large house or high end, luxury property. This means you’ll most likely have to own more than one holiday let before VAT becomes something to think about.

What are classed as allowable expenses in a Furnished Holiday Let?

Your Furnished Holiday Let is treated in a similar way to that of a business when it comes to expenses. This means you can offset expenses against your revenue, as long as they are:

a) Claimed against commercial use only. If you use your property for private use, you will need to calculate what percentage of the expense is commercial.

b) Are not capital. For example, one-off payments for the purchase or construction of the property, or for its fixtures (capital allowances could cover these expenses).

Examples of allowable expenses could be:

  • Utility bills or refuse collection
  • Interest on loans associated with the property
  • Advertising or letting agency fees
  • Products bought for the property (cleaning products and welcome packs)
  • Maintenance and cleaning costs

Need some more advice?

Check out HMRC’s handy Guide on Furnished Holiday Lettings (2020), or give your local Lakes Cottage Holidays team a call on 017687 74060 for more information on holiday letting.