Maximising Tax Relief on your Furnished Holidays Lets

September 20, 2023

Furnished Holidays Lets [FHL] have more favourable tax rules than traditional buy-to-let properties.

Many landlords are moving their properties to this type to take advantage of this; before we get into the benefits, let’s look at the conditions to qualify as a furnished holiday let.

Letting conditions for Furnished Holiday Lets

To qualify as a Furnished Holiday Let, the property must be fully furnished and commercially let in the UK or EEA.

The three occupancy conditions

In addition to the qualification criteria, the property must pass all three occupancy conditions.

These conditions apply to the first 12 months of letting for new lets or the tax year (6 April – 5 April) for continuing lets.

1. The pattern of occupation condition

If the total of long-term lets (31+ days) exceeds 155 days in the year, this condition is not met, and the property will not qualify as an FHL.

The reasoning for the limit is to reduce the possibility of property owners accepting long-term lets and passing them off as holiday lets to access the tax benefits.

2. The availability condition

The property must be available for at least 210 days in the year to qualify as an FHL. This excludes any days that you or your family stayed at the property.

This rule was introduced to ensure that the property is genuinely available as a commercial let to earn a profit.

3. The letting condition

The final condition is that the property must be let as furnished holiday accommodation to the public for at least 105 days in the year. This does not include long-term lets of 31 days or more or days you stayed at the property.

However, if your holiday let failed to attract 105 days of paying guests, there are two options to help you reach the threshold:

The averaging election: if you have more than one property.
Period of grace election: if your property reaches the threshold in some years but not others.
The averaging election

If you have more than one holiday let, and one or more of these properties is not meeting the letting condition, you can use the average occupancy of all FHLs you let.

This is particularly useful if you have a high occupancy level in one property but are struggling to achieve the occupancy level in a new property.

Period of grace election

Suppose you genuinely intended to meet the letting condition but were unable to. In that case, you may be able to make a period of grace election that allows the property to qualify as an FHL as long as the other two conditions are met.

To make an election, you must have met the letting condition in the previous year or provide proof that you genuinely attempted to reach the threshold.

Enhanced Capital Allowances

Assuming that your property qualifies, you can now claim capital allowances for capital items you acquire for the business. However, you can also attribute part of the purchase price to things that can be offset against your income. rather than waiting to deduct the costs against a future disposal. This means you can enjoy the benefit much sooner, a significant cash flow advantage.

So what can you claim? Firstly, there are main pool items, the cost of which you can claim against your income at 18% per year. These include telecommunication equipment, fixtures and fittings, sanitary ware, ironmongery, and flooring. They can typically represent 11% of your purchase price.

On top of that, you can claim integral features at a rate of 6% per year. These include water systems, heating, ventilation, and electrical systems. These can represent around 25% of the purchase price.

This means roughly 36% of the cost of your property would be available to deduct against your profits sooner than would usually be the case.

This relief is only available once on a property, so if the previous owner has made a claim, you can only claim the remaining portion. But if the property is new or converted from a traditional residential buy to let, the relief is available.

The claim can be made retrospectively, too.

Please get in touch with us if you would like to learn more.

About the Author

Jason Seagrave is the founder of Seagrave French and has been advising business clients for 35 years. He is never happier than when helping ambitious clients transform their businesses.

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