“I am thinking of investing in the purchase of a furnished holiday letting property in a popular seaside resort. I have heard that there are tax rules specific to furnished holiday lettings. Can you give a brief outline of the rules?”
Income from furnished holiday lettings (FHL) is treated as rental income but it differs from the treatment of residential letting income. There are several conditions that must be satisfied for a property to qualify as a FHL:
- It must be within the UK or European Economic Area
- It must be furnished for normal occupation and the occupant must be able to use it
- The letting should be on a commercial basis with the view to profit
There are also three occupation requirements as follows:
- During the year the property must be available for the commercial letting as holiday accommodation for at least 210 days
- During the year the property must be occupied as furnished holiday accommodation for at least 105 days
- If the property is let for longer than a 31 day stretch by the same person then that period will not count towards the letting condition (unless occupied under exceptional circumstances i.e. delayed flight)
Individuals will account for the income and expenditure for tax years whereas a company can use a 12 month accounting period. The only exceptions to this are the years in which the letting starts and the year the letting ends. At commencement the occupation requirements are applied for the first 12 months of letting.
If more than one property is let and one or more of those properties does not meet the letting condition an election can be made to average the rate of occupancy for all the FHL’s.
A period of grace election can also be made if the letting condition is failed. The election can only be made where the letting condition was met in the previous year. When an election is made it can also apply for the following year.
Do you have a question? Simply call our Tax & VAT experts on 01332 242 257