Tax and Furnished Holiday Lets

With British Summer in full swing, many of us are thinking of our next holiday destination. Statistics show that 1 in 10 of us have a holiday home, often used for rental and family use. From the visitor’s perspective, a holiday home offers you familiarity, comfort and ease; but the owner is likely benefiting from the largely unknown tax benefits associated with Furnished Holiday Lettings (FHLs).

If you own a holiday home in the UK or European Economic Area that is furnished and commercially let, there may be tax advantages you’re not aware of.

Furnished Holiday Lets Advantages

  • The cost of furnishings can be offset against your pre-tax profit, potentially increasing your rentability (this isn’t an option for long-term rentals).
  • Any income generated via lettings is relevant earnings for the sake of pension contributions, meaning you could be saving more into a registered UK      pension up to the annual income earned from your letting.
  • Profits can be distributed across all owners in the way you desire, as opposed to having to meet a 50:50 split on Land Registry basis for long term lets.
  • Selling the property opens up the opportunity of entrepreneur’s relief, roll-over relief and hold-over relief, all of which save you Capital Gains Tax.
  • Small Business Relief means you can save council tax

In showing the benefits of FHLs, it is important to note the downsides. Importantly losses cannot be offset against other taxable income. It’s not all bad news, and rather losses are just carried against future profits for the next four years. Secondly VAT may apply depending on the level of income.

So, does your property qualify?

If you answer yes to all of the below, you could be saving thousands in Tax

  • The property is furnished
  • Intention for profit
  • The property is available for 30 weeks of the year
  • Let commercially for 15 of those 30 weeks

Get in touch to find out how FHL regulation could benefit you.