9 Common Concerns Around Furnished Holiday Lets
Author: Amanda Cunningham (ACCA, FMAAT), Tenby Practice Manager and Tourism Specialist
From how to qualify as a furnished let to managing Covid low occupancy figures and tax considerations, LHP Tourism specialist Amanda Cunningham tackles 9 common concerns around furnished holiday lets.
Being based in a beautiful part of the world running the LHP Tenby office, I often advise on furnished holiday lettings (FHLs) in and around Pembrokeshire and South Wales and even pan-UK.
With their own tax treatment (HS253) and specific rules to qualify, Covid-19 has really impacted letting occupancy trade this past year. Many business owners have reassessed their FHL tax implications since lockdowns and UK travel bans, but the good news is 2021 ‘staycations’ are currently booming with lets booked way in advance now.
Whether you are considering setting up an FHL or have some concerns with your current let – especially during Covid, I’ve tackled some common concerns here to help you with the common pitfalls and considerations. My advice is to read this and get in touch for a chat.
1. Can I rent my property as a furnished holiday let?
Furnished holiday lets are classified as a trade by HMRC and qualify for some tax advantages providing they meet certain criteria. Firstly, the property must be actively promoted and let commercially with the intent of making a profit. Secondly, 3 availability and occupancy conditions need to be met. Your let must be available for commercial letting for at least 210 days per year. Secondly your let must be rented as holiday accommodation to the public for at least 105 days of the year. Thirdly, if the property is rented to the same person for more than 31 days consecutively – you must total no more than 155 days of this long let type per year.
2. What expenses can I claim against FHL income?
Expenses incurred wholly, exclusively and necessarily for the trade are allowable and examples of these are things like utility bills, rates and water rates, advertising costs, letting agency fees, cleaners and cleaning materials, welcome packs, maintenance costs and also things like interest on loans/mortgages relating to the property and fixtures/equipment (however capital allowances would be claimed for these costs).
If utility bills are shared with your own home, then an apportionment will have to be made to account for the private use. Holiday lets that are available for 140 or more days in a year will be valued for Business Rates in England and Wales.
In Wales there is also a further requirement to be actually let out for 70 days in the year. You may be able to claim the Small Business Rate Relief which can reduce the amount to council tax payable.
3. What if I can’t let my property for the full occupancy levels, especially due to Covid-19?
Following recent lockdown measures, some holiday let businesses have not been able to meet occupancy levels to qualify as furnished holiday lets. However, if you intended to meet the levels and the reason for not doing so was out of your control (e.g. Covid) then you can make a ‘Period of Grace Election’. You can make this election as long as you met the requirements in the previous year and you can show that you genuinely intended to let the property commercially in that year.
4. I have more than one property, what happens if I can’t let them all out for the required occupancy?
If you let more than one property as a furnished holiday let and one or more doesn’t meet the 105 days letting condition, you can elect to apply the ‘Averaging Election’ rule. This takes into account both/all property letting conditions and can work to your advantage.
5. The property is jointly owned, are we taxed equally on the profits?
It is possible to allocate profits (and losses) between married couples or civil partners in whatever way you choose. However, the property must be jointly owned for this to be allowed.
6. What if I don’t make a profit?
Any losses incurred by the furnished holiday let cannot be offset against any other income in the year. Losses will be carried forward to be offset against future profits of the lettings.
7. Do I need to register for VAT?
You would only need to register for VAT should your turnover from lettings exceed the VAT threshold, currently £85,000 for the year.
8. Should I set up a limited company for my furnished holiday let?
We would advise speaking to us to discuss whether this would be an option for you. There are additional administrative requirements and potentially more taxation implications with a limited company.
9. What happens when I decide to sell my furnished holiday let?
Under new rulings for Capital Gains Tax (CGT) on residential property, all disposals must be reported to HMRC within 30 days of completion along with the payment of any tax due.
There are however a couple of CGT reliefs that may be available to you. The first is Business Asset Disposal Relief – as the property is a business asset, then you will only pay Capital Gains Tax at the rate of 10%. The second is Business Asset Rollover Relief – you may be able to defer the Capital Gains Tax if you use all or part of the proceeds to purchase a new holiday let.
We can ensure you gain the best possible advice for your business to maximise profit and manage risk. For more detailed advice on your holiday let(s) or other form of tourism business, please don’t hesitate to get in touch with us at LHP. With offices across South Wales including Tenby, Haverfordwest, Carmarthen, Cross Hands and Lampeter and a long track record of helping tourism businesses, you are in safe hands.