Owning a furnished holiday let (FHL) can be a rewarding venture, offering not only an enjoyable holiday experience for you, your family, and friends but also a potential source of extra income. In this guide, we’ll explore the key tax benefits and requirements for properties that qualify as a Furnished Holiday Let (FHL) in the UK, including how to ensure you’re making the most of these opportunities.
What is a Furnished Holiday Let?
A Furnished Holiday Let (FHL) is a specific type of rental property in the UK and Northern Ireland, as well as some European countries, that qualifies for certain tax advantages. In order to benefit from these perks, a property must meet specific criteria outlined by HMRC (Her Majesty’s Revenue and Customs). These criteria include the level of furnishings, availability, and actual bookings.
The demand for short-term holiday accommodation in the UK continues to rise in 2024, providing a prime opportunity for property owners to earn additional income. However, tax implications are a significant consideration for holiday let owners, with anywhere between 20% and 45% of your profits potentially being paid in tax to HMRC. Therefore, ensuring you are claiming the correct tax benefits is crucial.
One of the most valuable tax advantages for FHL owners is the ability to claim capital allowances, which can be deducted from the purchase price or development costs of the property. Unfortunately, many holiday let owners either don’t claim these allowances or underclaim, leading to overpaid taxes. Reviewing your eligibility for capital allowances could save you thousands of pounds.
How to Qualify as a Furnished Holiday Let
To be classed as a Furnished Holiday Let, your property must meet the following requirements:
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The Property Must Be Furnished
It may seem obvious, but to qualify as a Furnished Holiday Let, your property must be furnished to a suitable standard. The specifics of how well-furnished the property needs to be aren’t explicitly stated, but it should include everything you’d expect from a self-catering holiday cottage. If you’re unsure, an experienced holiday letting agency can guide you on meeting this requirement.
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Commercial Intent
The property must be available for rent with the intention of making a profit. It’s not necessary to have made a profit yet, but your primary aim must be to operate the property commercially. If you can show that you have a business plan or have listed the property with a professional holiday letting agency, this can help prove your intent.
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Availability for Letting
In the first 12 months, your property will be in a ‘probationary’ period. During this time, it must meet the following requirements to qualify as a Furnished Holiday Let:
- The property must be available for rent for at least 210 days (30 weeks).
- It must be let commercially as a holiday property for at least 105 days (15 weeks).
- If occupied by the same person for over 31 days, the total number of longer stays must not exceed 155 days.
Days when the property is occupied by yourself, family, or friends at discounted or no charge do not count towards the commercial occupation requirement.
While these figures may seem strict, some flexibility exists:
- If you can’t meet the required occupancy: The criteria can be averaged across multiple properties, though properties in the Republic of Ireland are treated separately from the rest of the UK.
- If you can’t meet the occupation figures after your probationary period: If you meet the criteria in the previous year, you may be granted a grace period (up to two years), allowing you to maintain FHL status if you meet the required occupancy in the following years.
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When Does a Property Stop Being a Furnished Holiday Let?
Your property will no longer qualify as an FHL if it meets any of the following conditions:
- The property is sold.
- The property is used for private occupation.
- It no longer meets the letting conditions, such as failing to meet the occupation requirements or choosing not to take advantage of grace periods or averaging elections.
Key Announcements from the Autumn 2024 Budget
The Chancellor’s Budget announcements on 30th October 2024 included some key changes that may impact holiday let owners:
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Business Rates
From 2025-2026, self-catering properties in England that pay business rates and don’t qualify for small business rates relief will receive a 40% discount on their business rates. This discount is capped at £110,000 per business. Additionally, the small business rates multiplier will remain permanently low from April 2026, benefiting small businesses.
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Stamp Duty
Stamp Duty Land Tax (SDLT) on second properties in England has increased from 3% to 5% from 31st October 2024. However, properties where the exchange of contracts took place before this date will not be subject to the new rate. In Wales, Stamp Duty remains at 4%, and in Scotland, it is 6%.
For more information on Stamp Duty for holiday lets, check out our detailed guide.
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Capital Gains Tax
Despite concerns about an increase, Capital Gains Tax (CGT) on property sales has remained at 18% for lower-rate taxpayers and 24% for higher-rate taxpayers.
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Furnished Holiday Let Tax Regime
The Spring 2024 Budget had already announced that the Furnished Holiday Let tax regime would be abolished as of 1st April 2025. However, no further updates were provided in the Autumn 2024 Budget.
Conclusion
Owning a Furnished Holiday Let can provide great financial benefits, but it’s essential to ensure your property meets the required criteria and that you’re claiming the appropriate tax reliefs. The ability to claim capital allowances, for example, can significantly reduce your tax burden. Be sure to review your eligibility for these tax savings to avoid overpaying.
The changes introduced in the 2024 Autumn Budget also provide both opportunities and challenges for holiday let owners. It’s important to stay informed about these developments and to plan accordingly.
If you’re looking to maximise your holiday let’s potential, having professional support from an agency or tax advisor can help ensure you’re on the right track.