The UK Government has recently announced updates to holiday lettings tax rules and guidance rental income from properties that qualify as furnished holiday lettings (FHLs).
The main change is, that from 6th April 2025, the tax benefits relating to FHLs will be abolished.
These changes are designed to provide specific tax reliefs and benefits, but they come with certain conditions and requirements.
Let’s break down what this means for property owners in simple terms.
Key Benefits for FHLs
If your property qualifies as a Furnished Holiday Letting, you can benefit from several tax advantages:
- Capital gains tax reliefs: You can claim reliefs that are typically available to traders, such as Business Asset Rollover Relief, relief for gifts of business assets, and relief for loans to traders.
- Capital allowances: You’re entitled to plant and machinery capital allowances for items like furniture, equipment, and fixtures.
- Pension earnings: Profits from FHLs count as earnings for pension purposes.
To enjoy these benefits, you need to calculate the profit or loss from your FHLs separately from any other rental businesses you have.
Qualifying Criteria for FHLs
To ensure your property qualifies as a FHL, it must meet the following criteria:
- Location: The property must be in the UK or the European Economic Area (EEA), which includes Iceland, Liechtenstein, and Norway.
- Furnished: The property must have enough furniture for normal occupation, and visitors must be able to use the furniture.
- Commercially let: The property should be let with the intention of making a profit. Even if you let the property out of season just to cover costs, it can still be considered commercial if making a profit was your intention.
Occupancy conditions and holiday lettings tax rules
To maintain FHL status, your property must meet three occupancy conditions:
- Pattern of occupation condition: The total of all lettings that exceed 31 continuous days must not be more than 155 days in the tax year. If this condition is not met, the property won’t qualify as a FHL for that year.
- Availability condition: The property must be available for letting as furnished holiday accommodation for at least 210 days in the year.
- Letting condition: The property must be let commercially to the public for at least 105 days in the year. Days when you let the property to friends or relatives at zero or reduced rates do not count.
Special elections
If you struggle to meet the letting condition of 105 days, there are two helpful elections:
- Averaging election: If you have multiple FHL properties and some don’t meet the 105-day requirement, you can average the occupancy across all your properties. This can help meet the threshold collectively.
- Period of grace election: If you genuinely intended to meet the letting condition but were unable to due to unforeseen circumstances, you can make a period of grace election. This can allow the property to qualify as a FHL for up to two consecutive years without meeting the letting condition, provided it met the condition in a previous year.
Practical implications
It’s important to keep separate records for UK and EEA FHL businesses since losses from one cannot be offset against profits from the other, while if your property stops qualifying as a FHL, special tax treatments will no longer apply.
This includes capital allowances and Capital Gains Tax reliefs.
Additionally, the full amount of finance costs (i.e. mortgage interest) can be deducted from FHL income.
Need a hand with holiday lettings tax rules
Understanding and navigating these rules can be complex.
At Cooper Accounting, we specialise in helping property owners like you manage your FHL businesses efficiently and tax-effectively.
Our friendly team is here to offer expert advice and personalised support to ensure you make the most of your rental properties.
If you have any questions or need assistance with holiday lettings tax rules, don’t hesitate to get in touch.
Let’s work together to maximise your benefits and simplify your tax obligations.
