While it is well-known that ‘capital allowances’ tax relief is available on hotels or bed & breakfasts, self-contained Furnished Holiday Lets (‘FHLs’) also have access to tax relief under the correct conditions.
With an estimated capital allowances claim on an FHL in the region of 25% of the purchase expenditure, there could be substantial tax relief waiting to be claimed.
What is an FHL – Furnished Holiday Let?
For a property to be classed as an FHL it must meet the criteria which is set out by HMRC. The reason HMRC set out this criterion is to make a clear distinction between a residential property (which does not qualify for tax relief) and a genuine commercial holiday letting business.
The following must be met to class the property as an FHL:
- The property must be situated in the UK or in the European Economic Area (EEA).
- The property must be furnished.
- The property must be commercially let (you must intend to make a profit).
- The property must be available for letting for at least 210 days in the relevant 12-month period (the tax year).
- Out of those 210 days, the property must actually be let for 105 days or more.
- Long term occupation (let for 31 days or more) must not exceed 155 days in the tax year. Any period of long-term letting cannot be counted towards the 105 days of commercial holiday letting required to qualify.
Where you have purchased a property that you intend to use as an FHL, you must first establish that no prior capital allowances claims have been carried out by any prior owner(s). The fantastic bonus of FHLs is that invariably the property was previously used as a residential dwelling. Capital allowances are not available on residential dwellings. Therefore, we can usually establish (quite quickly) that no claims have been made by the prior owners, leading to an unrestricted claim on the acquisition costs.
Fit outs & Refurbishments
If you have fitted out or refurbished your FHL, whether that be installing new carpets, altering the electrical services, or installing a new fitted kitchen for example, then all these additional costs will attract tax relief through capital allowances – we’re also able to separate out any structural / building costs, as these will not attract any relief!
Advantages for Individuals Who Own A Furnished Holiday Let
FHLs are commonly owned individually, therefore if the owner is a higher rate taxpayer, a potential capital allowances claim can save them from paying 40% tax (vs 25% CT rate) on their FHL income! A saving not to be missed!
Furnished Holiday Let Tax Relief Considerations
The only drawback, is that the allowances from a FHL capital allowances claim can only be offset against profits from the FHL business. Furthermore, any losses that arise, cannot then be offset against other income.
Therefore, in isolation, the FHL business must be profit-making to benefit from capital allowances claim.
So, if you own an FHL or your about to buy one, and you’re unsure whether you have claimed all that you are entitled to, then it would be worthwhile speaking to a specialist.
We have partnered with MJS Tax who are qualified RICS surveyors and tax advisors and experts in this field. Please contact Phoebe Hindlet from MJS Tax – email@example.com / 07961 580250 to find out more!
Written by Phoebe Hindlet, Senior Tax Manager at MJS Tax
- Phoebe is a tax professional with over 11 years of experience. She has a wealth of experience working with clients who own Furnished Holiday Lets, and has prepared various types of claims including developments, fit out and refurbishments.