Owning a furnished holiday let can be a great investment with lucrative income and a great place to stay with your family and friends. But what about the taxes? Here at WanderHosts we are here to help you understand the advantages of your furnished holiday let and provide you with this 2024 tax guide to help you.
What are the advantages of furnished holiday lets?
You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, Relief for Gifts of Business Assets and Relief for Loans to Traders)
You are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
The profits count as earnings for pension purposes
Claims for Profit & Loss against your Income Tax
Any profit you make from your furnished holiday let will be taxed as income. The good news is you can deduct certain expenses from your income tax. For example, insurances you need to take out, utility bills, mortgage interest, travel to and from your holiday let and any costs which are associated to refurbishing the property.
No need to pay Council Tax
If your property qualifies for furnished holiday letting (read on to find out if you do), you will need to register for business rates, due to our research it’s highly likely that business rates will be cheaper than council tax, there are some areas in the country which this may not apply, by clicking here you can find and check your business rates.
Capital Gains Tax, Paying a Flat Rate
If it comes to a decision of not wanting your furnished holiday let anymore and you looking to sell, you will have to pay capital gains tax. There’s some good news as your property accounts as a business, this means you will not have to pay any tax on the first £11,000 and a 10% flat rate on the remaining.
Tax Relief Examples which you can claim.
Please see below a few examples of expenses you can claim Tax Relief on, please note that you can only claim on commercial expenses –
Insurance – Any claims you make on your insurance for your furnished holiday let, please keep all the files saved. We here at WanderHosts are here to help, so if you have any questions you may want to ask, or need any recommendations contact us at info@wanderhosts.com
Furniture – As mentioned before this is something which you can claim tax relief on, if you’re looking to upgrade your furniture or they need replacing due to wear and tear. We have undertaken a few projects ourselves so if you need any advice in kitting out your property to provide that luxury standard, give us a shout!
Repairs – Over time your property will need a few minor repairs due to the popularity of your holiday let, this is something that can also be claimed.
Utility Bills – Yes, you can even claim back on your services i.e. gas, electric and water
Any disadvantages for Furnished Holiday Lets?
As with most things, owning a furnished holiday let does come with a few disadvantages, but it’s only minor, depending on how many properties.
Losses cannot be offset against other taxable income
Although you can set the loss of your furnished holiday let profits of later years, you cannot set the losses of one furnished holiday let business against another, this could mean losses could accumulate across a number of years.
VAT
If the income from your property exceeds the £85,000 VAT threshold, then you will need to apply to be VAT registered. The good news is that unless you have multiple properties it’s unlikely that you would have to worry or think about this.
Putting together the figures, your property would have to earn £1,635 per week for a whole year, although we’d love for you to be that successful on one holiday let, this is unlikely.
To benefit from these rules, you need to work out the profit or loss from your Furnished Holiday Lettings separately from any other rental business.
As you can see the advantages outweigh the disadvantages, this also includes making more of a profit than a long-term rental property. We take away the hassle of short-term rental management here at WanderHosts. Read more about our services here.
Does your Property Qualify as a Furnished Holiday Let?
The answer to this is yes, if your property or properties are in the UK. Although it may seem obvious, your property will also need to be furnished within your let which is liveable for yourself and your guests, and for a successful business you would want these to be a good standard.
In addition to this, you must intend to make a profit from your property/properties, this doesn’t necessarily mean you must make a profit, it is more about the intent. This can be proven in numerous ways such as making your property available on platforms such as WanderHosts
You can find out more information here on the government website.
Conditions for your property to be a Furnished Holiday Let
For the first 12 months of becoming a furnished holiday let, your property will enter a ‘probationary period’ and your property’s availability will be reviewed
For your property or properties to comply as a furnished holiday let it will need pass the following conditions.
If the total of lettings by one person/group exceeds 31 continuous days is more than 155 days during the year, your property won’t be classed as a furnished holiday let for that year.
If your property is in England, it will be rated as a self-catering property and valued for business rates if it’s both:
available to let for short periods for at least 140 nights in total over the current and previous tax years
actually let for at least 70 nights in the last 12 months
available to let for short periods for at least 252 nights in total over the current and previous tax years
actually let for at least 182 nights in the last 12 months
You can’t include any days when you’re staying in the property. HMRC won’t consider the property to be available for letting while you’re staying at the property free of charge.
This won’t count if you let your property to friends or relatives at zero or reduced rates, but we’d say as long as you’re charging your friend and family in full, then they will be classed legally as holidaymakers for tax purposes.
Including in the above you can’t count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either:
Falls ill or has an accident, and can’t leave on time
Has to extend their holiday due to a delayed flight
To break this down, you must be available to let for at least 140 days a year and rented on a commercial basis for at least 70 days a year.
In the year of the Covid-19 pandemic all businesses and unforeseeable circumstances can happen. You may intend to make your property available for this number of days but have been forced to close.
If you don’t let your property out for the minimum requirement of 70 days, you have two options that can reach your occupancy threshold (these are called elections):
The averaging election - if you have more than one property
The period of grace election - if your property reaches the occupancy threshold in some years and not others
For more information on how to make an election click here
* At time of publication, (13th Jan 2023) WanderHosts has taken all sensible consideration to guarantee that the data contained in this article is exact. Notwithstanding, no guarantee or portrayal is given that the data is finished or liberated from mistakes or errors. Conventional data is contained inside this article and every individual's tax assessment issues are unique, further advise should be sought from an accountant.