top of page
Search
  • claireslk

Holiday lets and tax




With the increase in staycations, along with COVID and travel restrictions, there has been a 40% increase in holiday lets in the UK (according to BBC data). What this will look like in 2023 is yet to be seen, but even so, there are a lot of new individuals with furnished holiday lets (FHL). So what should you be declaring on your tax return?


An FHL is treated separately by HMRC for the purposes of income tax and capital gains tax. It sits in its own space within your self-assessment tax return and therefore, it comes with its own assessment criteria.


  • If the total of all lettings that exceed 31 continuous days is more than 155 days during the tax year, this condition is not met so your property will not be an FHL for that year.

  • Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.

  • You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. This cannot include any time you stay in the property. If you own multiple properties for FHL then you can average this criteria across the properties (averaging election).


Period of Grace - where you have met these criteria in both the year before and the year after and the year in between has, due to exceptional circumstances, not met the criteria, then you can elect for this to be a period of grace.


What does this mean for income tax? Property income must be reported in your self-assessment. Expenditure can be deducted including the costs of changeover, laundry, utilities, rates, and waste costs and you will be taxed on your net income.

You are able to claim capital allowances with an FHL (different to other property income) which means that you can claim the costs of purchasing assets (dishwasher, sofas etc...) through the capital allowances scheme and usually at 100% in year one as first year allowances.

The other area that is unique for income tax is where this money is taxed. Many people own the property jointly, usually this would mean that income would be applied at 50% to each owner. However, an FHL is seen as a business and where one of the joint owners runs the business either wholly or more than the other owner then the income can be applied to a different split, relevant to activity.

Losses for FHL can only be used against profits for FHLs. You can carry back or forward but you cannot apply against other business profits.


What about other tax reliefs? For capital gains tax an FHL is a business. This means that the disposal (sale or gift) of the asset can qualify under business asset rollover relief which, if the sales proceeds are then reinvested in another qualifying trade then the original gain is rolled over until the new asset is sold.

Business asset disposal relief is also available; therefore when a disposal takes place the gain qualifies under the lifetime limit of £1m for the relief and the gain is charged to 10% capital gains tax rather than the standard 28%.


When calculating what your net income is for pensions, and determining how much you can place into your pension each year then your earnings from an FHL will go towards this.


Inheritance tax - an FHL is not recognised as a business for inheritance tax. There are no business reliefs available on gifting or your death estate for an FHL. There are plenty of discussions on this and more than enough case law. To make your FHL relievable for inheritance tax is a bigger conversation than this blog - but one I am happy to have another time!


As with many other tax areas, the rules around holiday lets and reporting are not always easy to understand. If you wish to get your tax return completed ensuring you are getting the correct tax reliefs applied then please do get in touch.


16 views0 comments

Recent Posts

See All

Comments


bottom of page