The Complete Tax Guide for Furnished Holiday Lettings

FHL is a short-term accommodation that helps property owners earn income. Like other property income, FHL should be reported on your tax return if you are a landlord. However, the tax treatment differs slightly from that of different rental properties.

This article illustrates some of the frequently asked questions and explains how your tax treatment differs from that of nominal property.

Use the links in the table of contents below to easily navigate to your desired section

• Who Qualifies as a Furnished Holiday Lettings?
• Commercial Letting: What Does it Mean?
• Are there any Terms and Conditions for FHL?
• Is there Tax Implementation on the Income From
  Furnished Holidays?
• Are There Any Furnished Holiday Tax Rules that
  need to be Fulfilled?
• What are the VAT Considerations for FHL?
• Capital Allowances For Furnished Holiday Lettings
• Pension Contributions From FHL
• Is it Possible to Distribute the Profit With My Partner?

Who Qualifies as a Furnished Holiday Lettings?

The term ‘furnished holiday let’ has a statutory definition, so to qualify, the property must:

• The profit must be short-term rental to earn money.
• The property should be available for a significant portion of the year and should be actively promoted to attract guests.
• The property must be located within the UK and the European Economic Area. 
• The property should be thoroughly furnished for visitors when they stay.

However, if you have multiple holidays in the UK, that will be considered one to charge taxes. You must save records for every company separately. If you own separate properties in the UK and EEA, all EA properties will be considered the other.

Commercial Letting: What Does it Mean?

Commercial letting is defined as owning a property to make a direct profit. Sometimes, renting property gets tricky or may only profit you a little. In this case, you may earn less profit from your property. However, your properties will still be considered commercial.

Are there any Terms and Conditions for FHL?

Yes, there are terms and conditions for furnished holidays, and your property must meet the requirements and satisfy all conditions regarding availability, occupancy, and promotion.

• The Availability Criteria

  To meet the FHL criteria, the property must at least meet the minimum of 210 days and 30 weeks of the year. However, if the owner owns the property, it wouldn’t be counted. So whether you live in a holiday letting or any of your guests are staying there, it won’t be classed as a furnished holiday letting.

  • Conditions of Occupancy Patterns

    Specific occupancy rules apply to furnished holiday lettings. Customers can’t stay over 31 days or more than 155 days a year; otherwise, it will be called a long-term let.

    The requirements for FHL

    The public must commercially own the property for 105 days. If the total 105 days still need to be completed, you can use the average election or grace election to meet this 105-day criterion. 

    FHL is also considered furnished holiday lettings, which is also considered a tax year like the one (6th April or 5th April). If it is a new FHL with 12 months, it was first deemed furnished at the beginning of the day.

    Promotion

    Besides conditions for duration and availability criteria, the FHL should also be promoted. This can be done via holiday letting agencies. If you have a reasonable budget, you can also use Airbnb to showcase your FHL in the budget. 

    Is any permission required to let out a furnished holiday let?

    Yes, it can sometimes be, but it depends on the situation. So, if it’s a brand-new holiday and you are modifying the original purpose of the premises, then there can be a concern about obtaining permission. You must obtain permission from the mortgage provider or the council. There can also be other considerations, such as the local homeowner association.

    Is there Tax Implementation on the Income From Furnished Holidays?

    Yes, there can be tax implementation on Furnished Holiday Lettings. If there’s a condition that you earn via FHL, then you have to report to HMRC and pay the tax of your untaxed property income. You have to use Airbnb to determine the total earnings you earn from your income and report it to HMRC.

    For tax purposes, FHLs are now treated as commercial businesses so that the cost can be weighed against the taxes paid on the earned income.

    The expenses you can encounter for furnished holiday lettings are

    • Electricity and heat 
    • Loan interest related to that property
    • Maintenance, Repair and Plumbing.
    • Loan interest related to that property
    • Insurance cost
    • Licence and subscription fee
    • Advertising and Promotion
    • Health and Safety Concerns

    What are the VAT Considerations for FHL?

    You only need to register VAT if your taxable turnover in 12 months exceeds £90,000 registration threshold. If you want to register for VAT, specific rules, such as charging, reporting, and paying VAT, will apply.

    Also, you can only claim back the VAT you pay if you have built your house and used it with your family.

    What about VAT?

    You only need to register for VAT if your VAT-taxable turnover in 12 months reaches the £90,000 registration threshold. The usual rules for charging, reporting, and paying VAT will apply if you need to register.

    Also, you can only claim VAT back if you build your house, renovate it, or repair it after you or your family use it.

    Are There Any Furnished Holiday Tax Rules that need to be Fulfilled?

    FHLs are different from other types of property income, so you might find slight differences in the income you have earned from other types of property. That means you can use tax relief allowances that aren’t available with different types of rental income. 

    If your furnished holiday letting business makes a considerable loss, this loss will only be carried against the profit of the same furnished holiday letting business. This will be implemented on both FHLs and EEA. A loss in this situation can be offset against future profits, which will help reduce your tax bill. 

    As the profit is taxable over your rental income, you are not responsible for paying Class 4 National Insurance on your FHL.

    Capital Allowances For Furnished Holiday Lettings

    Furnished holiday lettings are responsible for capital allowances on all items specifically designed to improve the look and feel of the facility. This also involves interior, white goods, and equipment for the bathroom and kitchen. This allowance is not for long-term rental accommodations. These expenses are subtracted from pre-tax profit, reducing the amount of payable tax on the rental income of your FHL.

    Pension Contributions From FHL

    The profit you earn from Furnished Holiday Lettings is relevant for pension purposes. This means you are eligible for pension purposes, and it depends on how much you earn from the Lettings. 

    Is it Possible to Distribute the Profit With My Partner?

    If you own Furnished Holiday Lettings with your spouse, you can distribute the profit between both partners.

    However, the process could be clearer for long-term rentals, where the profits are shared according to property ownership. Owing 40% of the property will give you 40% profit. FHL is more flexible in this scenario so that you can share the profit with your partner.