VAT Guide for Furnished Holiday Lets
If you’re running a holiday let, you know it can be a fantastic way to enjoy your property and bring in some extra money. At Crabpot Cottages, we’re here to guide you through the perks of having your holiday let qualify as a Furnished Holiday Let (FHL) for tax purposes.
What’s a Furnished Holiday Let (FHL)?
An FHL is a type of rental property in the UK, Northern Ireland, and other parts of Europe that meets specific criteria set by HMRC. These properties come with some good tax benefits, but you’ll need to tick a few boxes regarding availability, bookings, and how well the place is furnished.
How to Qualify as an FHL
To qualify as an FHL, your property needs to:
Be Furnished: Make sure your place has everything a guest would need for a comfortable stay. Crabpot Cottages can help you get this right.
Be Let with Profit in Mind: You need to show that you’re renting out your property commercially, aiming to make a profit. Listing with an agency like us can make this easy to prove.
Meet Availability Criteria: In the first year, your property should be available for rent at least 210 days and actually let for 105 days. Personal use days don’t count.
FHL Status and Occupation Rules
If you can’t meet these occupation figures, you might qualify for averaging across multiple FHLs or a period of grace. But be sure to keep track, as these rules are strict yet flexible if needed.
When Does a Property Stop Being an FHL?
Your property loses FHL status if it’s sold, used privately, or fails to meet letting conditions.
Allowable Expenses and Tax Advantages
Running an FHL comes with some great tax perks:
Capital Allowances: Claim on items like furniture, refurbishments, and even part of the property’s purchase price. This can significantly cut your tax bill.
Pension Contributions: Income from an FHL qualifies as relevant earnings, so you can make tax-advantaged pension contributions.
CGT Reliefs: When selling, you can claim certain Capital Gains Tax reliefs, which aren’t available for long-term rentals.
Flexible Profit Splitting: If you co-own your FHL, you can split the profits in the most tax-efficient way, unlike long-term rentals which are fixed by ownership percentage.
Possible Disadvantages
While there are many advantages, there are also a few things to keep in mind:
Losses: FHL losses can’t offset other income and must be carried forward.
Allowable Expenses: Expenses should relate to the business use of the property, and personal use needs to be calculated separately.
Other Considerations
VAT: If your holiday let’s turnover exceeds the £85,000 threshold, you’ll need to register for VAT.
Council Tax vs. Business Rates: Depending on your location and how often your property is rented, you might pay business rates instead of council tax, which could actually save you money through Small Business Rate Relief.
If you need any advice or have questions about managing your holiday let, the team at Crabpot Cottages is always here to help.