Tax advantages of Furnished Holiday Lets

Aug 16, 2023 | Agriculture, Tax services, TC news

Diversification is increasingly important to many farmers and agricultural businesses. Agri Partner Mark Gibson, has found that making the most of land and buildings to help provide steady cash-flow throughout the year has been a real benefit to many of our clients. When it comes to tax planning for agriculture related businesses and families, property rental, especially holiday lets, are very popular.

Why do holiday lets make such a good investment?

Landlords may opt to rent their properties as Furnished Holiday Lets (FHL) with UK staycations still a popular choice for many. There are several tax advantages of FHLs both in terms of income and capital taxes if your property qualifies.

Three conditions of a FHL

To qualify as a Furnished Holiday Let, the property must be in the UK or EEA, fully furnished and commercially let. In addition, there are three occupancy conditions which must all be met.

  1. Pattern of Occupation – Long term lets (31 days or more) must account for less than 155 days in a year.
  2. Availability Condition– The property must be available for at least 210 days in a year.
  3. Letting Condition – The property must be let for at least 105 days (not including long term lets noted above). If your property fails this test there are two elections, ‘averaging’ or ‘period of grace’, that can assist.

Assuming the property qualifies as a FHL you can now benefit from both income tax and capital tax benefits.

Income Tax

FHL’s are classed as a trade and as such you can claim capital allowances (tax deductions) on furniture and white goods meaning you can deduct the costs of furnishing your property.

In addition, the interest and finance cost restriction that applies to long term lets does not apply to FHL, so if you have a mortgage you will get full tax relief on your interest payments. This can be a significant tax advantage to you as a landlord.

Finally, profits count as relevant UK earnings which means you can make tax beneficial pension contributions.

Capital Taxes

Should you sell or give away your FHL you are able to claim certain Capital Gains Tax reliefs which are not available to long term rental properties.

  1. Business Asset Disposal relief – This relief can reduce the tax on the increase in value of a property from 28% to 10%.
  2. Gift Hold Over relief – this allows for the passing onto the next generation in life without creating an immediate tax charge.
  3. Business Asset Rollover Relief – This allows you to defer the gain on the sale of the property if you reinvest in another business qualifying asset.

It is important to note that you need to adhere to these qualifying rules. Should the property fail to meet the FHL criteria, the reliefs mentioned above will cease to be available and you may have to repay some tax relief given via previous claimed capital allowances.

If you are a property landlord with a FHL and require guidance on property taxes, please do not hesitate to contact us at info@thomsoncooper.com.

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