The last couple of years have been unprecedented in the number of twists and turns they’ve taken when it comes to taking holidays.

Of course, Covid-19 made travel both undesirable and impossible, but once the travel ban and restrictions started to lift there was a huge enthusiasm by many to get away! Then, in 2022, along came the flight-cancelling chaos with many holidays being changed or even cancelled last-minute. And here we are, in 2023 faced with a rising cost of living, holiday prices increasing and a European summer heatwave so extreme that even the most enthusiastic of sun-seekers among us might be put off in favour of a good old fashioned British stay-cay.

Research found by the ABTA Holiday Habits report that, while holidays remain a priority for people, they are more likely to ‘take fewer holidays, opt for cheaper travel options or cut down on what they do while on holiday’.

And here lies the great opportunity for holiday homeowners in the UK.

According to the Office of National Statistics Census 2021, more than 1 in 10 addresses are were used as holiday homes in some areas of England and Wales. Holidaying in the UK has become more popular than ever, people have begun to realise that there’s a lot to be discovered ‘on their own doorstep’. This has presented landlords with a great opportunity to take advantage of the tax benefits that come with investing in a furnished holiday let (FHL).

The tax benefits and rules for a FHL are different to those for full-time rented property and, in the eyes of HMRC, a FHL is identified as a business.

The criteria of an FHL:

• The property must be fully furnished
• The property must be based in the UK
• It must be available for furnished holiday letting for at least 210 days of the year and be let for at least 105 days of the year
• It cannot have the same occupier for more than 31 days (or by the same occupier for more than 155 days overall)
• The homeowner is not considered an ‘occupier’ so if being used by the owner, family or friends at reduced rates, these periods are excluded from 210 and 105 day totals.

Tax Advantages of FHL’s

Rather than being treated as a standard rental, a FHL is treated as a business. That means you’ll benefit from extra tax relief on your rental income. The main advantages are:

• You are entitled to trading expenses which you will be able to claim tax relief on. These include:
  • • Interest costs – you can reclaim ALL the interest occurred against any mortgage or loan used to purchase the property.
    • Energy and gas bills – can be claimed for all periods when occupied by a third party.
    • Insurance and repairs – the majority of standard repairs, cleaning, gardening, maintenance and insurance protection can be claimed against tax.
    • Travel to your FHL – you can claim 45p per mile when travelling by car to your FHL.
    • Accountancy fees – if using an accountant to complete a self-assessment tax return, you are entitled to tax relief on the fees.
• You are entitled to ‘Plant and Machinery’ Capital Allowances – this means that purchases such as furniture, equipment and fixtures can be deducted from your pre-tax profits. A full list of what can be claimed can be found here.
• Profits count as earnings towards your annual pension allowance – this means that you may be able to contribute the profits into your pension in order to mitigate your overall tax liabilities.
• If you wish to sell, you may qualify for Business Asset Disposal Relief which can reduce your taxable capital gain.

It’s important to be clear that with an FHL, as with any income rental, you are legally required to complete self-assessment tax returns, and it can be useful to use an accountant for this. That way you can be certain that you qualify as an FHL (meeting all the criteria outlined by HMRC) and equally importantly, make sure you are benefitting from all available tax allowances and reliefs.

Talk to us here at Integro Accounting, we offer a low-cost personal tax return service from £225 + VAT and would be delighted to help you make the most of owning your FHL.