Furnished Holiday Lets – tax advantages
There are various tax advantages to a letting being a Furnished Holiday Let (FHL) compared to any other let. A furnished holiday let is treated by HMRC as a business whereas any other let is seen as an investment.
Furnished holiday lettings businesses qualify for capital allowances when equipment used In the course of that business is acquired. Such costs benefit from the100% write off under the Annual Investment Allowance rules. For a FHL tax relief is available for replacing assets and the initial furnishing of the holiday property. There is no such tax relief for equipment for any other letting.
An FHL allows you deduct all mortgage interest paid (not the capital) when calculating taxable profit. In future years standard buy to let landlords won’t be getting full tax relief on their interest.
Also you may find you pay less tax (depends on criteria and the rules at the time) when you sell the property if it’s always been a FHL whilst you own it.
You can also reduce tax by paying profits from a FHL into a pension. Not so for any other buy to let.
Furnished Holiday Lets – conditions
As the tax treatment is better for FHL, HMRC are keen that only genuine cases qualify! To be an FHL there are conditions including it must be available to let for at least 210 days per year (any day the owners stay there can’t count) and must be actually let to the public on short term lettings (less than 31 day per let) for at least 105 days per year.