Year end Tax Review 2023/2024 – Blog 10 – Furnished Holiday Lettings

A property that qualifies as a Furnished Holiday Letting (FHL) can benefit from various tax reliefs not generally available to property rental businesses.

• Capital allowances can be claimed for expenditure on furniture, fittings and equipment, including immediate relief on qualifying expenditure of up to £1 million under the Annual Investment Allowance (AIA).

• For Capital Gains Tax (CGT) purposes, the disposal of an FHL is treated as the disposal of a business asset and can be ‘rolled over’ against the acquisition of replacement assets, or perhaps benefit from Business Asset Disposal Relief (BADR), which would give a 10% CGT rate on the whole gain, up to a lifetime limit of £1 million.

• Allowable expenses (including finance costs) can be offset against the gross rental income when calculating the net taxable profits.

• Losses can only be carried forward against FHL profits in future years, not set against other rental income.

To qualify as an FHL, the property must be furnished, located in the UK or another EEA country, and let on a commercial basis with a view to realising profits.

It must also satisfy the following tests:

• The property must be available for letting to the public (not family or friends) for at least 210 days per tax year.

• The property must actually be let to the public for 105 days or more per tax year, excluding periods of continuous occupation by the same person for more than 31 days.

• The property must not normally be let for periods of long-term occupation totalling more than 155 days per tax year. A period of long-term occupation is one where the property is let to the same person for more than 31 days.

Planning points

• If your FHL property is not let for the requisite 105 days in 2023/2024, but satisfies the other conditions, you may still be able to secure the tax reliefs available by electing for a ‘grace period’ to apply. This is possible if all the conditions were met in the previous year (2022/2023)

• Consider making an averaging election where you have more than one FHL property and one property does not meet the occupancy test of 105 days on its own.
  • Where the average occupancy of all the FHL properties is above 105 days, all properties will qualify.

• Check whether any capital expenditure qualifies for AIA

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.