Real estate laws in the UK are continuously changing. This year there are a number of changes being implemented for owners of furnished holiday lets (FHL). If you own this type of property, it's worth familiarising yourself with the changes as soon as possible, in order to stay ahead of the game.
Furnished holiday lets (FHL) are categorised as a trade by the UK tax authorities, rather than as a property. When calculating your taxes, you will need to make sure that this is taken into account. In order to be categorised as a furnished holiday let, your property must also meet certain requirements.
- A rental period more than 210 days in one year;
- The furnished holiday let must be rented out for at least 105 days in any one year period;
- The tenants must not friends or relatives of the owner;
- The FHL should be located either in the UK or European Economic Area (EEA).
- Furnished holiday lets occupied by a family or single person for short stays of more than 31 days will also fall into this category. If your property fits this description, then the new rules apply to you.
Benefits of Furnished Holiday Lets
A furnished holiday home lease brings several advantages for the owner. These include the following:
- Retirement accruals. The income your property generates entitles you to make pension contributions.
- Council tax exemption. Owners of furnished holidays homes are not required to pay council tax. However, you will need to register for business rates. These are calculated by your local council and tend to be lower than council tax. To register for business rates your FHL must be rented out for more than 210 days a year.
- Tax deduction. Furnished holiday home owners are entitled to a tax reduction. This applies to furniture, appliances and other possessions inside the property. If you decide to make repairs, you can deduct the costs from your pre-tax income.
- Capital gains tax credits. As a FHL owner you qualify for capital gains tax credit along with other taxes that are usually just for traders. These include business asset disposal relief, business asset rollover relief and gift hold-over relief.
All of the above is legislated in accordance with the law and applies to all furnished holiday home owners in the UK and EEA.
How do I get benefits?
You can apply for capital allowances for any necessary items or improvements made to your furnished holiday let, as soon as you start renting your property out. This includes furniture, appliances, light fittings, electrical appliances and other utensils. It's worth noting that heating and electricity costs are not included.
Any fixtures and fittings claimed for in your furnished holiday home, can be deducted from your profit when you calculate your tax bill. This will need to be done on a yearly basis.
If your Air b and b rental is classed as an FHL, it counts as a full-fledged business. Therefore, the costs of maintenance and improvements must be covered by your rental income, and similar to capital allowances, you can claim for these expenses against your revenue when paying tax on your holiday let.
Allowable tax expenses include
- Interest payments on loans or mortgage payments
- Cost of advertising and promoting your FHL on advertising platforms
- Home insurance
- Heating and electricity costs
- Cleaning costs
- Gardening costs
- Utility bills
- Real estate agents or management company fees.
It is important to note that benefits to FHL owners are available for as long as tenants are occupying the property.
VAT obligations when renting out FHL
In addition to the benefits and tax relief outlined above, renting with Airbnb (add hyperlink - https://www.smarthost.co.uk/) also imposes some obligations on the owner. If your rental income exceeds £85,000 per year, you are required to register as a VAT payer. In order for this rule to apply, your property must generate a weekly income of £1,635 for all 52 weeks of the year. The majority of FHL owners don't tend to make that amount of income however, it's good to know the rules, as it may apply to those who own more than one property.
**Please note that this blog should not be taken as formal advice. If you are unclear on any of the information mentioned above, you should always seek professional advice.**