Ever dreamt of owning your own holiday home and letting it out? Owning a holiday let can provide a potentially lucrative additional income, and if it qualifies as a Furnished Holiday Let (FHL) then you there are certain tax advantages too.
What are the advantages?
The main advantages of have a holiday let include the following:
Furnishings can be claimed - Unlike residential lets, the cost of furnishing your holiday rental property can be claimed via capital allowances. This means that all the costs of furniture and furnishings can be deducted from profits.
Pensions - The income from a furnished holiday let is classed as relevant earnings for personal pension purposes, meaning you can make tax-advantaged pension contributions.
Profits when you sell - Certain corporation tax reliefs can be claimed against any profit made when you sell an FHL.
Buying with your spouse - If you own the FHL with your spouse, then the profits can be split in the proportion you want. This is in contrast to long-term rental properties where the ownership is automatically deemed to be 50:50 and therefore profits are split 50:50 unless formal provisions have been put in place to alter this.
Are there any disadvantages?
Potential disadvantages of having FHLs range from exposure to Business Rates and VAT as outlined below:
Business rates - If your property is in England and available to let for 140 days or more per year, then it will be rated as a self-catering property and valued for business rates. Different rules apply if the property is in Wales or Scotland. However, you may be able to claim up to 100% Small Business Rate Relief.
VAT - If your cumulative turnover from your furnished holiday let properties exceeds the VAT threshold (currently £85,000 for the 18/19 tax year), then you will need to become VAT threshold. If you are self employed and are VAT registered, then your FHL income may be subject to VAT also.
Losses - Losses generated from your FHL cannot be offset against other income, however they can be offset against future profits.
How can my property qualify as a FHL?
If you have a furnished property which you let commercially with the intention to make a profit, then the criteria to be an FHL are as follows:
Availability condition: Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year
Letting condition: You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year
Occupation condition: Lettings that exceed 31 continuous days must not exceed a total of 155 days during the year.
Failure to meet any of the above conditions means that the property does not qualify as a FHL, although the figures can be average across multiple FHL properties, as well as periods of grace being available if the property met the conditions in the previous year.
If you would like to discuss any of the areas discussed in this article, please contact Jane at Townend English on 01759 305989.
Jane Frith 15th June 2018