Slash Your Tax Bill With Your Furnished Holiday Let: Start Saving Today!

In this week’s Tax Tip, we’ll provide you with some important information about your Furnished Holiday Let (FHL) that could slash your tax bill.

Furnished Holiday Letting (FHL)

If you’re looking for ways to save tax for furnished holiday lets (FHL), there are several tax benefits available to FHL owners.

For Income Tax, Corporation Tax, and Capital Gains Tax (CGT) purposes, FHL is regarded as a trading activity.

Furthermore, FHL earnings are deemed investment income rather than earnings for National Insurance (NI) purposes, implying that no NI contributions are payable on profits earned by an individual.

Qualifying FHL businesses are eligible for various CGT reliefs that aren’t typically available to letting businesses. These reliefs include Rollover Relief, Gift Relief, Business Asset Disposal Relief, Relief for loans to traders, and Substantial Shareholding Exemption for companies.

Income Tax implications

Are you interested in finding ways to save tax on furnished holiday lets (FHL)? If so, there are several tax-saving opportunities that FHL owners can take advantage of.

Firstly, FHL profits are considered relevant earnings for pension contribution purposes.

Additionally, when an FHL business is jointly owned by spouses or civil partners, the profits can be divided as per their wishes for Income Tax purposes.

In terms of capital allowances, all plant and machinery expenditures are eligible for relief, and the mortgage interest and other finance costs restriction does not apply to FHL businesses.

Finally, it’s crucial to keep in mind that FHL losses are limited for Income Tax purposes and may only be carried forward against profits earned from the same UK or EEA FHL business.

Qualifying as an FHL

If you own a furnished holiday let (FHL) and want to reduce your tax liabilities, it’s important to keep in mind the following requirements:

For accommodation to qualify as an FHL, it must be furnished, located in the UK or EEA, and available for commercial holiday letting to the public for at least 210 days during the relevant 12-month period. Furthermore, it must have been let as holiday accommodation for a minimum of 105 days in the same period.

Longer-term occupancy periods cannot be included in the 105-day letting test or exceed 155 days in total during the relevant 12-month period.

In case the 105-day letting test is not satisfied, it may be possible to make a period of grace or averaging election to maintain FHL status.

Remember that a rental business may fail to qualify as an FHL for Income Tax or Corporation Tax purposes because it does not meet all the FHL qualifying conditions. However, it may still qualify as a business asset for specific CGT reliefs.

If you’re looking to save tax on your holiday property, the Tax Expert can assist you in implementing tax-saving strategies that can help your business grow.

If you have any queries or would like to discuss FHL in more detail, please do not hesitate to contact us.

Contact us here and we’ll get back to you!