We’ve looked at the advantages and disadvantages of holiday lets, now let’s take a more detailed look at the allowances and expenses you can offset against your FHL profits.
As mentioned earlier, furnished holiday lets are a trading business and taxed as such. The good news is that there are tax allowances available for furnished holiday lets that are not available to buy-to-lets - these are called capital allowances.
Capital allowances is tax relief on the reduction in value of “plant and machinery” assets. In the context of a holiday let, this is the furniture, fixtures and fittings you’re putting into your business.
Capital allowances allow the business to write off the cost of the assets over a number of years. This is commonly done by offsetting a percentage against the taxable profit, and in some circumstances could mean tax-free profits for a number of years.
Alternatively, you may be able to offset the full amount of certain ‘plant & machinery’ assets in your first year - this is known as an Annual Investment Allowance (AIA).
Capital allowances cannot be claimed for buy-to-lets, as BTL is classed as an investment, rather than a trading business for tax purposes.
Capital allowances can be claimed on a new build or conversion of a qualifying FHL property at the end of the tax year on your self-assessment tax return or company accounts.
They can also be claimed on the purchase of an existing FHL property which has not previously claimed capital allowances (or not claimed them fully) through a section 198 election during the purchase process.
|Loose items (that could be moved to another property)||Fixed items (cannot be moved)|
|Furniture - sofa, table & chairs, beds, wardrobes/drawers||Sanitary ware & plumbing|
|Furnishings - curtains, bedding, cushions||Kitchen units|
|White goods - freestanding fridge & freezer||Electrics|
|Appliances - microwave, kettle, toaster, television||Heating|
|Property repair and replacement - such as kitchen & bathroom fittings, windows, doors and boilers|
In addition to capital allowances, there are also the usual allowable expenses that can be offset against profits to reduce the amount of tax due.
A capital expenditure is a cost related to the property in its entirety and includes expenses designed to add value, such as adding an extension, en-suite, conservatory or a log burner.
Capital expenditures can be claimed when selling the property to offset capital gains tax.
|Property purchasing expenditures||Including solicitors costs and survey costs from when the property was initially purchased.|
|Stamp Duty Land Tax||From when the property was initially purchased.|
|Property enhancement||Value added to the property, such as building an extension, adding an en-suite or reconfiguring the layout. For FHLs, this could also include luxury improvements such as a log burner or hot tub.|
|Estate agent fees||From selling the property.|
You can continue to claim the usual day-to-day costs associated with managing and running the FHL as you do with normal investment properties.
Revenue expenditure is the costs incurred for the day-to-day running of the furnished holiday let business. They can be deducted from the gross profits to reduce your taxable profit.
At the end of the tax year on your self-assessment tax return or company accounts.
|Mortgage interest repayments||The full mortgage interest can be claimed for furnished holiday lets.|
|Maintenance||Costs of maintaining the holiday let, such as cleaning and gardening.|
|Holiday let business management costs||Including holiday let insurance, accountancy fees, advertising, online platform fees, membership charges of landlord/property associations, and stationery.|
|Travel, hotel accommodation, food & drink||Whilst away on business/visiting properties. Mileage is 45p per mile for the first 10,000 miles per tax year and 25p per mile for all miles thereafter in a car. These can only be claimed when visiting the holiday let on business, not for private travel.|
|Legal fees||Including those associated with mortgage/re-mortgage arrangement costs. Also includes extending leases of up to 50 years, preparing contracts and preparing deeds of trust.|
|Computer & mobile phone costs||If an expense, such as a mobile phone, laptop or tablet, is not used 100% of the time for running the property business, a proportion of the cost can be claimed.|
|Utility & Council tax costs||Utilities (water, electric and gas) and council tax can be claimed if the property is empty.|