Qualifying as a furnished holiday let still continues to provide additional taxation benefits when compared to normal renting.
These taxation benefits include:
- Plant and machinery allowances can be claimed on furniture, equipment and fixtures.
- The profits count as relevant earnings for pension purposes.
- The residential, rental taxation relief restriction for interest does not apply.
- Capital Gains Tax reliefs apply, including: Business Asset Rollover Relief, relief for gifts of business assets, reliefs for loans to traders and Business Asset Disposal Relief.
There may also be non-tax advantages of a property qualifying as a furnished holiday let including:
- Small business rates relief.
- Covid support grants being payable.
There are a number of qualifying conditions which need to be met in the tax year for the property to qualify as a furnished holiday let. These are as follows:
- The property must be furnished.
- It must be let commercially with the intention to make a profit.
The following three occupancy tests must be met:
- The property must be available for letting for at least 210 days.
- The property must be commercially let out for at least 105 days in the year.
- Pattern of occupation – the property cannot be let to the same person for more than 31 continuous days and the periods of longer term occupation cannot be more than 155 days in the tax year.
To assist the taxpayer, averaging can be used to meet the occupation condition of 105 days if more than one property is owned This allows the days actually let to be averaged over the number of properties owned by the taxpayer.
Period of Grace
Where a property has qualified in one tax year, the owner may elect to treat it as continuing to qualify for up to two subsequent periods even if it no longer meets the period of actual letting condition, provided that:
- The property is actually let during the tax year.
- There is a genuine intention to meet the letting condition.
- The other qualifying conditions are met.
HMRC have clarified the positon regarding the effect of the Covid lockdowns. They confirm that as long as the person has made the property available for letting for at least 210 days the test has been satisfied even if the property could not be used.
However, if the property hasn’t been let for the 105 days, the two options available for the owner are a period of grace election (if the property has previously met the occupancy threshold) or the averaging election if more than one property is owned. Detailed advice may be required.
Contact us if you would like any advice or assistance with your Furnished Holiday Let.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.