Furnished Holiday Lettings – Tax Benefits
When furnished holiday property is let on a commercial basis for short periods, the owner can benefit from tax reliefs which wouldn’t otherwise be available to residential landlords, providing certain conditions are met.
The property doesn’t have to be located in a recognised holiday area to qualify as a furnished holiday letting. It may be situated in most parts of the UK, aside from the Isle of Man or Channel Islands, or in another country within the European Economic Area (EEA).
The furnished holiday letting business can be conducted through a company, by an individual, or by a partnership, but some tax advantages are only open to individuals and partnerships. For example, capital gains tax (CGT) is not paid by companies, so the reliefs relating to CGT are not relevant to companies.
Advantages HMRC regards furnished holiday lettings as a trade, which qualify for the following tax reliefs that don’t apply to other types of lettings:
Increased pension contributions
The profits are treated as earnings for pension contributions, so increased pension contributions may be made for the business owner.
These can be claimed for the cost of fittings and equipment installed or used within the property, as well as for the cost of equipment used for running the furnished holiday letting business.
Reduced capital gains
Capital gains made on the disposal of the furnished holiday letting properties may be:
- entrepreneurs’ relief: charged to CGT at a reduced rate
- rollover relief: deferred so the CGT is paid on a later sale
- holdover relief: transferred so CGT is paid by the next owner. Joint ownership Usually, proit for tax purposes is split in the same way as ownership. So if you own 50% of a property you will pay tax on 50% of any profit. However, due to furnished holiday lettings being treated as a trade, there’s more flexibility so that profits can be split in different proportions which can be a useful tax planning tool. Conditions For the advantages to apply, the pattern of lettings must satisfy these conditions for the tax year (accounting year for a company) or for the last 12 months prior to disposal for CGT purposes:
- it must be let furnished and on a commercial basis
- it must be available for short-term letting for at least 210 days
- it must be actually let on short-term lets for at least 105 days. ‘Short-term’ means not occupied by long-term tenants, classed as those who stay longer than 31 days. However, the property may be let to one tenant for longer than 31 days and still qualify, providing the total lettings that exceed 31 days do not amount to more than 155 days of the tax year. – see Winter Lets
For more in depth tax advice you should consult a specialist accountancy firm we would recommend: