Since the mid eighties “furnished holiday lets”, also known as a FHLs, have been taxed differently to other property income with some significant tax advantages available to landlords who rent out this type of property. However, the narrative surrounding second properties and holiday lets has become politically contentious and they are often cited as contributing significantly to the challenging housing landscape in many areas of the country.

For this reason the separate tax treatment of holiday lets is set to be abolished from April 2025. From then on FHLs will be taxed in the same way as any other rental property.

The following information is only relevant until April 2025

What is a Furnished Holiday Let property?

This may seem straightforward, but a furnished holiday let, also known as a FHL, is a fully furnished holiday home with the sole purpose of being rented out commercially to individuals for holiday stays. There is specific criteria it needs to meet to be classed an an FHL as outlined further below in this guide.

How is a Furnished Holiday Let different to a Rental Property?

A standard rental property offers a long-term rental agreement between landlord and tenant and there is no requirements for the property to be furnished.

Whereas, in the eyes of HMRC, FHL’s are identified as a business – the property should be marketed appropriately, for example advertisements on holiday letting websites or directories, and the dwelling will need to be occupied for a set number of days.

What is the criteria for a Furnished Holiday Let?

To benefit from the tax advantages available for FHL’s, the following criteria must first be met:

The property must be furnished – you’ll need the basic amenities and furniture akin to that of a self-catering property and your guests must be allowed to use them. Any experienced letting agency can provide guidance on this.

The property must be based in the UK or in the European Economic Area (EEA) – This includes Iceland, Liechtenstein, and Norway; alongside the EU member states.

The FHL must be available for furnished holiday letting for at least 210 days of the year.

The FHL must be let for at least 105 days of the year.

The FHL can only have the same occupier for no more than 31 days – The space can not be held by the same occupier for more that a total of 155 days of the year.

The homeowner is not considered an ‘occupier’. HMRC does not consider the property ‘occupied’ should the property be used by the homeowner, or friends and family that given reduced rates – such stays must be exempt from the above criteria to be considered an FHL.

All FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business.

What are the tax advantages of a Furnished Holiday Let property?

With a FHL, the property is treated as a business rather than a standard rental. Therefore, you will benefit from extra tax relief on your rental income. So, what are the main advantages?

  • You are entitled to trading expenses for which you’ll be able to claim tax relief. This includes, but is not limited to, the following:
    • Interest – you can deduct 100% of the finance costs incurred on a FHL, whereas finance costs relating to a standard residential let property are restricted.
    • Energy and Gas bills – these costs can be reclaimed for the period that the property is occupied by a third party.
    • Insurance and Repairs – any property will require insurance protection and general maintenance. The majority of standard repairs, cleaning, gardening, and maintenance for the property can be deducted from your profits.
    • Travel to your FHL – you can claim 45p per mile when travelling by car to your FHL property for business purposes.
    • Accountancy fees – as with any business, you are required to complete a self-assessment tax return. With your FHL you are entitled to tax relief on the accountancy fees should you need the support in doing this. More on this later.
  • You are entitled to what is classed as ‘Plant and Machinery’ Capital Allowances. This includes furniture, equipment, and fixtures. This means these purchases can then be deducted from your pre-tax profits. For a comprehensive list of what can be claimed, visit the government website: What counts as plant and machinery?
  • 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.
  • Should you wish to sell the property you will benefit from Capital Gains Tax Relief. This includes: Entrepreneurs Relief, Business Asset Rollover Relief, Relief for gifts of business assets.

What are the disadvantages of owning a Furnished Holiday Let?

As with anything, it’s important to get the full picture. Here are some potential disadvantages you may face when owning an FHL:

  • VAT – Once your FHL turnover is over £85,000, you’re required to register for VAT which will impact the way you’ll need to price your accommodation – you’ll need to add VAT at 20% to your prices or lose 1/6th of your income in VAT, and of course submit quarterly VAT returns and VAT payment to HMRC.
  • Wear on your property – as with any rental, having other people occupy your property will result in a level of wear and tear, but the nature of FHL’s has a higher turnaround of holidaymakers as opposed to one long term resident, possibly resulting in a little more upkeep with the need for more frequent redecorating, or furnishing/ homeware replacement.
  • Losses cannot be offset in the current tax year – any losses incurred from an FHL (or any other property business for that matter) whereby your outgoings have exceeded the income, cannot be offset against your other taxable income. You would have to wait to offset them against profits made only from that property business in the future.
  • Administrative work – To ensure your property continues to qualify as a FHL as outlined above, you’ll need to be mindful of reaching the right occupancy levels, so it’s a good idea to keep a record tracking this. Of course, then there’s advertising as well as managing the bookings, guest communications and cleaning.

So, how can we help?

As with any rental income you earn, you are likely to be required to complete an annual self-assessment tax return. This can be completed yourself, or with the services of a fully qualified accountant.

Our one-off personal tax return service means we will produce and file your self-assessment tax return to HM Revenue and Customs (HMRC). Our comprehensive package includes the following:

  • Dedicated qualified accountant
  • Complete liaison with HMRC
  • Guaranteed tax return submitted on time**
  • Ongoing tax reminders

Prices start from £225 + VAT – bespoke pricing will be provided based on each individuals requirement.

Your dedicated accountant will review and factor in the following:

  • Registration for a personal UTR number
  • Employment income
  • Rental income
  • Dividend income
  • Bank interest
  • Claim tax relief on EIS and VCT investments
  • And much more.
** provided that all required documentation is provided within a timely manner

For help with your personal tax return, click here to get started: Personal Tax Return Service.