Furnished Holiday Lets (FHL) Tax Guide 2019

Holiday Homes Tax Guide for 2019

What is a Furnished Holiday Let?

A Furnished Holiday Let is essentially a type of rental property classification within the United Kingdom, Ireland and other European countries. One of the main reasons as to why there is growing demand for holiday homes as an alternative investment is due to its huge tax advantages. Created to encourage investment and revival in the UK’s holiday hotspots, the FHL tax line lies between that of a regular rental property and a business – hence the profitable tax status.

The depreciation of the GBP has made the UK a popular holiday hotspot welcoming global tourism. The depreciation has also fuelled the spike in the growing number of Brits who are choosing a staycation over travelling abroad.

Investing in holiday homes gives investors the chance to benefit from the booming industry with excellent returns. Investors will also benefit from a lifestyle investment product as this opportunity allows investors to holiday in their FHLs.

Property that Qualifies as a FHL

  • Must be located within the United Kingdom or the European Economic Area.
  • Must be fully furnished for normal and adequate occupancy.
  • There must be intention to make a profit from the property. In this case, even without making a profit in reality, you need to at least prove the intention is there. This can be portrayed in a business plan or by working with a letting company.
  • The property must be available for letting for a minimum of 210 days per annum
  • Out of the 210 days, the property must be let and occupied for at least 105 of those days.
  • Must be let on a short-term basis – occupancies should be no longer than 31 consecutive days per let.

In circumstance where the FHL is not let for a minimum of 105 days, property owners can either turn to the averaging election (for multiple FHL owners) where their occupancy figures are averaged across their properties. Please note that FHL in Ireland are considered independent to the rest of the UK. The second option is a period of grace election (if your FHL fulfills the occupancy requirements in some years but not in others), where a maximum of 2 consecutive years are granted where you can still retain your FHL but must meet the requirements in the following years.

Tax Advantages of Furnished Holiday Lets

1. Capital Gains Tax Relief

If you were to decide to sell your Furnished Holiday Let property, one of the biggest tax advantages of this category is the ability to claim certain Capital Gains Tax (CGT) relief. Usually, standard buy-to-let properties adopt CGT rates at 18% or 28% payable upon selling the property, depending on the owner’s amount of other incomes. However, considering that a FHL is treated like a trading business, furnished holiday let properties are subject to a CGT entrepreneurs’ relief which decreases the capital gains tax payable to a 10% flat rate. ‘Roll over relief’ is also available to properties where all proceeds are reinvested in purchasing another furnished holiday home (or any other asset used by the owner for another trading purpose).

2. Council Tax Exemption

Given the minimum number of days in which the property must be advertised, FHL benefit from Business Rate property council tax. Because of this, furnished holiday home owners are able to claim Small Business Rate Relief, which can reach up to 100% depending on location.

3. Income Tax Relief

Due to the business aspects of a FHL buy-to-let, the properties are regarded as a trade when it comes to income tax. As a furnished holiday home owner, you are entitled to claim plant and machinery capital allowances for purchase of equipment for the property (such as furniture etc.). With this, you are also able to claim any profit/loss against income tax and pay your usual income tax rates unless the profit from the FHL takes you over the threshold. Therefore, the profits can contribute towards earnings for pension purposes.

However, it is important to note that with claiming tax relief on expenses for the furnished holiday home, you must ensure that you are only claiming commercial expenses and not personal use expenses. Furthermore, you must ensure that you do not attempt to claim the initial invested capital.

Overall, there are numerous tax advantages for investors considering holiday  homes as their next investment. To find out more head to our investing in furnished holiday lets page or alternatively get in touch and speak with one of our portfolio managers.

Find out more by getting in touch!

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