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Guest Blog: The Benefits of Turning a Property into an FHL

By Emilia Carvell, PR & Accounting Administrator of digital tax software, APARI

In March, the UK Treasury published a number of reviews and proposals relating to tax policy, dubbed “Tax Day”, aimed at creating a more modern and open tax system in the UK.

As expected, the primary focus was the modernisation of the tax system, boosting compliance and streamlining tax payments, but there was one such review likely to concern landlords and property owners.

It regarded the tax and allowances of Furnished Holiday Lets (FHLs). With the rise of staycations, these policy changes were a reaction to the increasing number of homeowners using sites like Airbnb to make additional income on their homes.


The Tax Benefits

Owners of FHLs receive several tax reliefs and allowances, providing that they meet the criteria set by the government, such as being subjected to business rates instead of council tax – a cheaper option as they are deemed to be commercial premises. Unbeknownst to many, the majority of FHLs are also viable for small business rates relief, meaning many property owners are missing out on saving.

FHL owners also benefit from being able to claim capital allowances on their property, meaning you can furnish it and deduct the cost from your pre-tax profits and claim certain Capital Gains Tax reliefs when the property is put up for sale (such as the Business Asset Rollover Relief). As well as this, FHL owners can classify income generated from their property as “relevant earnings” for pension purposes and also split FHL profits equally between a spouse flexibly for tax purposes – unlike with long-term rental properties where profits are divided based on the official ownership split.

And while this is great news for FHL owners, it does, unfortunately, mean that many property owners try to claim their property as an FHL, even if they don’t meet the criteria to benefit from the relief. Therefore, we have listed out what makes a property FHL approved in case you were considering earning a little extra cash.

To qualify, your property must be:

  • based in the UK or in the European Economic Area (EEA) – including Iceland, Liechtenstein and Norway. All FHL properties in the UK will be treated as one business and all FHL properties in the EEA will be treated as another;
  • furnished and must include sufficient furniture for normal occupation, such as beds, sofas and white goods;
  • commercially let, i.e., you must intend to make a profit from the rental. Letting a property out of season to cover costs still counts as a commercial let, even if you did not make a profit.

The FHL must meet the property conditions and key occupancy conditions. It should be:

  • Available as an FHL for at least 210 days in a year. You cannot count any days that you live in the property.
  • Let out as an FHL for at least 105 days in the year. You cannot count any days that friends or relatives stay in the property for free or for a reduced rate. You also cannot count any lets of more than 31 continuous days. The exception to this would be if something unforeseen happens.

Broadly speaking, if your property is furnished, vacant and advertised as a holiday let for seven months of the year and you let it out for at least three months, it should qualify as an FHL and be eligible for certain tax deductions and allowances.

While it’s currently unclear how HMRC will be checking that eligibility requirements have been met, it is important to check whether your property qualifies as an FHL and to collect any and all evidence to prove that this is the case.

If you have seen the array of apartments and quaint annexes advertised on Airbnb and have thought your property could be a perfect fit for eager commuters and travellers, listing your property as an FHL could be for you. But remember to make a clear distinction between your residential or commercial lettings and begin gathering evidence as you go.

For more advice and to find out how to make tax doable,