Since the COVID-19 pandemic began, and travel restrictions grew tighter, the number of people looking to holiday domestically in the UK has rapidly increased, along with it the number of Holiday Let Companies being set up to offer ‘staycations’. In the first half of 2021, 1401 Holiday Let Companies were incorporated – an 83% rise when compared to the same period on 2020, and 119% increase on 2019.
With so many new businesses in the market, it’s vitally important to understand what your financial obligations are, what taxes and expenses you’re expected to pay, and what reliefs and schemes you’re eligible to receive when operating a Furnished Holiday Let (FHL).
We’re going to take a look at what qualifies as an FHL, and five of the taxes and reliefs you need to be aware of in order to not only remain compliant, but also make the most of your business.
What Qualifies as a Furnished Holiday Let?
HMRC has specific guidelines about what is classed as a Furnished Property Let which state that to qualify, your property must be:
- In the UK or in the European Economic Area (EEA)
- Furnished with sufficient furniture to provide for normal occupation, and visitors must be entitled to use the furniture.
The property must be commercially let with the intention of making a profit, and the accommodation can only qualify as a FHL if it meets all the occupancy conditions that apply.
If you own more than one FHL property, you can average the number of qualifying days in which your properties were let (provided they are in the same area – you cannot mix UK and EEA together), to meet the qualifying conditions.
Taxes and Financial Conditions You Need to Be Aware of:
As with any business, there are taxes, rates, and expenses that you will need to be aware of, including:
Business Rates Instead of Council Tax
If you’re using your property for short-term letting, for more than 140 days in the calendar year, you will be required to pay tax on business rates rather than Council Tax. However, many properties who are treated as a trade business for this purpose are also eligible for Small Business Rate Relief which could provide up to 100% exemption – this will depend on the rateable value of the property.
Losses Cannot Be Offset Against Income
You are not able to offset losses incurred by your FHL in any year against any form of income. However, if you do make a loss, you can carry it forward and offset it against eventual profits in later years.
The ability to do this will also depend on the location of your property or properties; as you can only offset UK FHL losses against UK FHL profits, and EEA FHL losses against EEA FHL profits – you cannot set a UK or EEA loss against a profit from a different economic area.
High Income Earners will Need to Register for and Pay VAT
If your turnover from your FHL properties exceeds the VAT threshold (£85,000 per year, approximately £7000 per month), you will need to register for VAT.
If you run more than one property, or have a separate business, and you are VAT registered, your FHL income may also be subject to VAT.
Expenses and Reliefs You May Be Entitled to Claim:
There are options available to many FHL owners and business operators to help offset the cost, and reduce their tax bill, including:
The expenses and costs of running a FHL property are treated in a similar way to that of a business, allowing you to claim for certain costs and outlays provided that they are for commercial use only (you cannot claim expenses for private use), and are not capital (the purchase or construction of property, or fixtures would be included here – and these would be considered Capital Allowances instead).
Allowable expenses that you could deduct may include:
- Utility bills
- Council Tax
- Advertising costs
- Letting Agency and Management fees
- Products bought for use at the property (such as cleaning goods, and welcome packs)
- Maintenance costs (including cleaning and up-keep)
- Furniture expenses
- Home Insurance policies
Capital Gains Tax Relief
If you have decided to sell your FHL property, you may be able to claim Capital Gains Tax relief in different ways, including the Business Asset Rollover Relief (which allows you to delay paying Capital Gains Tax if you sell or use all or part of the proceeds to buy a new Holiday Home), Entrepreneur’s Relief (which means you’ll pay tax at 10% on qualifying assets), or Relief for Gifts of Business Assets (which you may be able to claim if you were to give away the holiday home or sell it for less than it’s worth to help the buyer).
How Can We Help You with Running a Furnished Holiday Let?
Our advisors are here to help you with advice, guidance, and the services you need to be fully compliant with the law and see that you’re receiving all the help and reliefs you’re eligible for when Running a Furnished Holiday Let. Get in touch with us today and learn more about the assistance we can provide in making the most of your property and its business income.