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Furnished Holiday Lets

Summary of Key Points

  • A holiday let meeting certain conditions enjoys a favourable tax treatment.
  • It has a hybrid tax status between a trading activity and a property business.

Background

Furnished holiday lets have long enjoyed a more favourable tax treatment than standard “buy to let” investment properties.   This note deals with the differences between furnished holiday lets and “standard” lets.

The Benefits of A Furnished Holiday Let

As a point of tax principle, the difference is that furnished holiday lets have historically been taxed as a trade, whereas “buy to lets” have historically been treated as investment properties.  There are two main benefits which this produces:

  • Capital allowances can be claimed for some investments in the property.  This will generally lead to lower taxable profits, and may even produce a loss for tax purposes.
  • Entrepreneur’s Relief should be available on the disposal of the property, with proper planning.  This means a Capital Gains Tax rate of 10% and not 18% or 28%.

The Tests

In order to claim the let as a furnished holiday let, it must:

  • Be let on a commercial basis with a view to a profit.  So renting it to lots of your friends at a big discount to the market rent does not qualify.
  • Be available for letting on commercial terms to the public for at least 210 days in the tax year.
  • No single occupancy of more than 31 days during the tax year is permitted for at least 7 months during the tax year.
  • It must be let for at least 105 days in the tax year.  If more than one such property is being let, then providing they average at least 105 days in the year, they all qualify.

Note that the following are not requirements to meet the tax definition of a furnished holiday let:

  • The property need not be located in a holiday resort.
  • The people renting the property need not be on holiday.