Does your holiday home qualify as a Furnished Holiday Let (FHL) property? And if it does, what are the tax advantages?
Does your property qualify?
From April 2012 the following conditions apply:
- The property must be situated in the UK or EEA.
- The property must be available for commercial letting as holiday accommodation for at least 210 days per annum.
- The property must be let on a commercial basis for at least 105 days per annum.
- The property must not be let for periods of longer term letting. Accordingly, for 7 months of the year the property must not be in the same occupation for more than 31 consecutive days and must not exceed more than 155 days in a tax year.
- Periods of longer term letting do not count towards 3 above.
The periods to which you need to apply these tests are:
- For a continuing let, the tax year.
- For a new let, assuming that property did not qualify as a FHL in the previous year, apply tests to first twelve months of letting.
- When letting ceases apply tests to last twelve months of letting.
There are complex rules that allow you to average the occupancy figures where you have more than one property in your FHL business. All of your UK FHL properties form a single trade for tax purposes. Any EEA properties form a separate trade. So you cannot average UK and EEA numbers. This averaging process can be useful where you have one or more properties that do not qualify and others that more than qualify for FHL status.
If you pass the test in 3 above for one year but fail it for the next 1 or 2 years, then you may be able to elect for those years to be treated as qualifying.
What are the tax advantages?
As your FHL business is considered to be a trade you will be able to avail yourself of the following reliefs that would not be available to non-FHL property letting businesses.
- You can claim capital allowances on the purchase of furniture, white goods and other qualifying expenditure.
- You may qualify for certain Capital Gains Tax reliefs including Entrepreneurs’ Relief, Business Asset Rollover Relief and relief for gifts and similar transactions.
- FHL profits count as earnings for UK pension relief.
Beware of losses though, as these can only be carried forward against future FHL profits.
If you would like to see if your property holding(s) qualify for these important tax advantages, please contact us and we will help you work through the necessary calculations.