Author: Matthew Jeffery, Tax Director
Owning and running a holiday home can be a very lucrative venture and an excellent source of income.
To ensure your holiday let is as tax efficient and financially rewarding as possible, it’s important to have a fundamental understanding of Furnished Holiday Let tax legislation so you can make the most of the tax advantages available to you.
A Furnished Holiday Let (FHL) is a specific category of short-term rental property classification. To qualify as an FHL, you will need to meet certain criteria.
If you actively advertise and let your property furnished, with the intent to make a profit, and you let it for a minimum of 210 days per year, and acquire bookings for at least 105 days per year, you will qualify as a FHL. Please note, during the 105 days it is let, it can’t be let to the same person for more than 31 consecutive days.
Holiday let tax specialists Zeal have complied some ‘Top Tips’ for owners to help them increase
the return on their holiday let business.
Claim all tax-deductible expenses.
HMRC allows operating costs and expenses essential for the running of your FHL to be deducted from your rental income. However, it’s important to note that these expenses must have been incurred wholly and exclusively for the purpose of running your FHL.
Examples of allowable costs include agent and accountancy fees, mortgage interest, advertising, utility bills, business rates, capital allowances and more. This is not an exhaustive list.
For a more comprehensive overview, Download Zeal’s Guide to FHL Allowable Expenses.
Make tax-advantaged pension contributions.
Income generated from a FHL property is classed as ‘relevant earnings’ which means you can make tax-advantaged pension contributions.
Joint owners? Distribute the profits.
If you share the ownership of your FHL, profits can be flexibly distributed for tax purposes, regardless of the actual ownership split. With a FHL property, you can apportion the profit however you decide, for example, allocating profits to the lowest earner.
Take Advantage of Small Business Rates Relief.
A FHL can be assessed for business rates instead of Council Tax as long as the property is available for short-term letting for 140 days in a 12-month period and actually let for at least 70 days (in Wales the days are higher at 252 available and 182 actually let). Most holiday lets will qualify for small business rates relief, meaning you pay no business rates or council tax!
Please note, if your property is not business rated, you may have to pay double or triple the standard rates of Council tax.
Claim all your Capital Allowances!
One of the most favourable (yet overlooked) tax benefits for FHLs is the ability to claim a specialist tax relief on part of the purchase price paid for the property, or the development costs spent to build or refurbish it. Around 20%-40% of the total amount incurred is typically identified in unclaimed allowances. This is for fixtures ‘embedded’ in and under the property such as electrical and heating systems, water pipework, bathrooms, kitchens and much more.
As the tax legislation for these property tax relief claims are extremely complex, specific tax knowledge coupled with property surveying and valuation skills are required. That’s why this isn’t an area of tax commonly covered by a general accountant, meaning it is often missed and left unclaimed. Zeal’s in-house team of Chartered Tax Advisors and Surveyors help holiday let owners unlock significant tax savings sitting in their properties, that they are often unaware of.
Zeal could help you:
Reduce or even completely eliminate your next tax bill.
Obtain a cash rebate for tax you have unknowingly overpaid.
Unlock a pool of tax savings to mitigate future HMRC payments.
Find everything you need to know about claiming capital allowances on furnished holiday lets in Zeal’s free guide.
Zeal are offering holiday let owners a free consultation to check if your property meets the Government criteria to claim this tax relief.
It’s easy to arrange a call for a time that suits you!
If you do qualify, Zeal can provide you a free proposal outlining an estimate of your potential tax savings and the next steps.
01633 287898 | hello@gozeal.co.uk
Disclaimer by Zeal
This article was written by Matt Jeffery of Zeal Tax, a leading capital allowances specialist firm in the UK, as an educational piece to help furnished holiday let owners. Matt can be contacted either by calling 01633 287898 or by email on hello@gozeal.co.uk.
The information provided in this article is of a general nature. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific advice from a professional before you take any action or refrain from action. Whilst we endeavour to use reasonable efforts to furnish accurate, complete, reliable, error free and up-to-date information, we do not warrant that it is such. We and our associates disclaim all warranties.
You may also like to read
Article: Buying or Selling a Commercial Property
Article: Embedded Capital Allowances Explained
