Do you rent out properties in holiday spots or cities?
Despite the fact that many let properties are located in scenic areas or city centres which attract holidaymakers, many landlords will by default opt to let out their buy-to-let properties on short tenancy leases of six months or more. If you let them our for shorter terms, then provided the criteria is met, they can be classed as Furnished Holiday Lets or FHLs which enjoy a number of tax advantages.
Despite the fact that landlords who let property are deemed to be running businesses by HMRC, a number of tax reliefs available to other types of trading businesses are denied to buy-to-let landlords.
However, if these same properties were let as Furnished Holiday Lets (FHLs) more advantageous tax benefits may apply.
If you let properties that qualify as Furnished Holiday Lets then generally:
- You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
- You are entitled to claim plant and machinery capital allowances for items such as furniture, equipment and fixtures and
- The profits count as earnings for pension purposes.
To benefit from these rules, you will need to work out the profit or loss from your FHLs separately from any other rental properties you may have.
Accommodation can only qualify as a Furnished Holiday Let if it passes 3 occupancy tests
- If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, your property will not be a classed as a Furnished Holiday Let for that year.
- Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year and this does not include any days when you’re staying in the property yourself as HMRC does not consider the property to be available for letting while you are staying there.
- You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. Again you cannot include any days when you let the property to friends or relatives at zero or reduced rates as these are not considered as commercial lets.
Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight
These notes cover the basics and there are other rules that may help you to average occupancy stats so that you meet the required criteria.
There are significant tax benefits to reorganising appropriate lets as Furnished Holiday Lets and we would encourage landlords who would like to consider this option, to talk to us here at THP Chartered Accountants to find out more about how we can help you with your Buy-To-Let, with offices in Chelmsford, Sutton, Wanstead and Saffron Walden.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration