When we talk about furnished holiday lets, we’re talking about owning and letting out a holiday home in the UK.
It’s a popular way for people to invest in additional property outside of their main residence, and earn income from renting it out.
Owners of furnished holiday lets have an asset they can use for holidays, while the income they earn from rentals can cover most of the costs.
With many overseas destinations currently on the Government’s red or amber lists, demand for domestic holidays this summer is high.
And in an era when interest rates are at record lows, it’s no surprise to see people investing in these types of properties in 2021.
There’s a fair few of them in Eastbourne and with us having an office in the coastal town, we’re in an ideal place to advise these second homeowners.
Furnished holiday lets & tax
Unlike buy-to-lets, HMRC considers letting holiday accommodation to be a trade and that offers several advantages.
We can deduct expenses such as letting agent fees, cleaning, advertising, and utility bills against any rental income you receive from the let.
Any rental profits your furnished holiday let makes in 2021 also count as earnings for pension purposes, opening up a tax-efficient strategy.
If you purchase any furniture, equipment or fixtures, it’s possible they might be eligible as plant and machinery for capital allowances.
When you dispose of the property, you may qualify for business asset disposal relief, business asset rollover relief, or gift holdover relief.
Despite all those pros, any costs you incur during private use are not allowable in calculating your furnished holiday let’s taxable profit/loss.
Furnished holiday let criteria
In order for your holiday home to qualify as a furnished holiday let for tax purposes, it must be in the UK or the European Economic Area.
You also need to furnish the property to a degree which enables normal occupation, and let the property on a commercial basis.
There are also three occupancy conditions your property needs to pass in the tax year – the pattern of occupation, the available, and the letting.
This is a complex area for the average second homeowner, and we can use our landlords’ service to check if your property meets these conditions.
Losing furnished holiday let status
Your property will lose its furnished holiday let status if you sell it, use it for ongoing private occupation, or if it does not pass the letting condition.
One final planning point to consider is that if the property does not meet the criteria, the special tax treatment will not apply.
This can be significant if you plan to sell the property in the near future, so get in touch with us for expert advice.