More and more people are becoming landlords, with latest figures suggesting there are now over 2.5 million landlords in the UK. Many of these are residential properties let for the long term, but an increasing number are being used for short term Furnished Holiday Lets (now around 16%).
There are a number of advantages of short term lets, including higher returns than residential lettings in popular tourist locations, and less issues around moving on tenants if you decide to sell. Special tax advantages are also available for Furnished Holiday Lets providing you meet the relevant criteria.
If your property meets the criteria below the property will not be subject to the restriction of mortgage interest relief that applies to residential property, limiting it to 20%. You can claim capital allowances for items such as furniture, equipment and fixtures Profits from Furnished Holiday Lets will also count as earnings for pension purposes, meaning you are allowed to contribute more.
When you come to sell the property, you have the benefit of capital gains tax reliefs which are available for traders such as Entrepreneurs’ Relief and Rollover Relief, although these may be restricted for any periods before the property became a Furnished Holiday Let.
To qualify as a Furnished Holiday Let, and benefit from the above tax rules, the property must be:
- In the UK or the European Economic Area – this includes Iceland, Liechtenstein and Norway
- sufficiently furnished to be used as a holiday home
- available to let for at least 210 days a year
- actually let for 105 days with no let for more than 31 days.
Don’t panic if there is the odd year when your property does not meet the final criteria as there are elections that can be made.
There are obviously a number of other considerations when deciding to let a property as a Furnished Holiday Let, it’s definitely a more “hands on” investment due to the high turnover of guests, and there are also special rules in parts of the country that may limit the number of days a property can be let in this way.
If you would like any further information on the tax benefits of Furnished Holiday Lets, please contact us. You can also find more information in our fact sheet, and more information is available from HMRC
Want to know more? Call us on 01392 260310 or email firstname.lastname@example.org