What is a furnished holiday let?
A furnished holiday let (FHL) is a type of short-term rental property which has a statutory definition. The reason it has a statutory definition is important because, if the test is passed, it allows you to access specific elements of the tax system which can be advantageous.
Broadly speaking, the rules state that a FHL must be available to let for 210 days per year (excluding time you spend there), be actually let for at least 105 days per year (excluding lettings to friends/relatives), and no more than 155 days of lettings over 31 days. As a Provestor client, we will assist you in determining the status of your property.
Furnished holiday let tax considerations
If your property is classified as a FHL, you can:
- Apply mortgage interest relief, meaning you can offset your mortgage interest from your profit
- Claim 'capital allowances', which means the costs of furnishing/refurbishing the property are tax-deductible
- Class the profits as earnings, allowing you to make tax-advantaged pension contributions
- Claim Capital Gains Tax reliefs when you sell the property
These four tax considerations are not available to conventional buy-to-let properties, meaning FHLs can be an attractive investment from a tax perspective.
If you plan to build a portfolio of FHLs, or have other business interests, you may have to register for, and charge VAT to your guests. The current threshold for VAT registration is £85,000 per year, and VAT on holiday lets is charged at 20%. This may make your holiday let less attractive or less profitable compared to other non-VAT registered holiday lets in your area.
Our accountancy service
How we help furnished holiday let owners
With our accountancy service, we will help you to gain a clear understanding of the FHL qualifying rules, and ensure that your property is classified correctly. We will ensure that you are taking full advantage of available tax reliefs, as well as handling your tax compliance, including preparing and submitting VAT returns if required. Plus, our accounting software will allow you to manage your property’s finances in real-time, and support you with your goals, such as investing in your next FHL.
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