Tax Rules on Holiday Homes

Whiting & Partners‘ expert advises on the tax rules that apply to holiday homes;

So, you enjoyed your break in a holiday cottage to the extent that you’re considering investing to make money from a similar property of your own. But a Furnished Holiday Let is a special type of property business where very different tax rules apply.

A Furnished Holiday Let requires the following conditions:

• Furniture for the occupiers to use
• Located in the UK or in the European Economic Area
• Available for letting to the general public for at least 210 days in a tax year
• Was actually let commercially as holiday accommodation for 105 days or more
• If it’s occupied by the same long-term tenants for more than 31 days, these periods must total no more than 155 days.

These rules can be relaxed if there are 1 to 2 years’ where it was not possible to let the property for 105 days. If the condition was met previously it can still be treated as a Furnished Holiday Let.

If you have more than one property which is used as furnished holiday accommodation, you can take an average of the days they were actually let to determine if the 105-day rule is met.

Capital allowances can be claimed on furniture and equipment used in the holiday accommodation as well as integral electrics, heating and plumbing systems.  Up to £200k annually can be written off 100% against profits.

Profits from Furnished Holiday Lets are considered earnings for pension purposes and can allow for more tax allowable pension contributions to be made.

Reliefs are available to reduce or defer any Capital Gains Tax (CGT) if the Furnished Holiday Let is sold. This includes Roll-Over Relief, Gift Relief and Entrepreneurs’ Relief which can reduce the CGT payable for higher rate taxpayers from 28% to 10%.

The recent restriction in tax relief on mortgage interest paid by residential landlords does not apply to Furnished Holiday Lets and the full amount of any interest paid can be deducted from profits.

To gain these tax advantages, it is vital to ensure that the qualifying conditions are fully met and the correct boxes are completed in the Self-Assessment Tax Return.

For further clarification and advice on this contact an expert at Whiting & Partners.