Furnished Holiday Lettings – Overview

There is a Furnished Holiday Letting (FHL) business when a property is made available to let for a period ranging from a few days to a few weeks for a vacation. A FHL business may operate from a single property, from multiple properties or as part of a wider enterprise such as a landed estate.

 A FHL business would be expected to generate more income than a property that is let on a long-term basis however, the regular turnaround of customers requires additional work and most likely higher recurring costs. Different tax rules apply where a property is occupied for the purposes of operating a FHL business.

 Operators of FHL businesses in Scotland have been subject to additional regulations in recent years. All FHL businesses need to have a special licence and local authorities also now have the power to deny licences unless planning permission has been obtained.

This is the first of four blogs which look at FHLs and considers the conditions to be met to be a FHL.

The legislation that explains what is meant by the commercial letting of furnished holiday accommodation can be found in the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). The accommodation must be let ‘on a commercial basis’ and ‘with a view to the realisation of profits’.

It can be either in the UK or in the European Economic Area (EEA), but for tax purposes UK and EEA FHL businesses are separate businesses. The conditions to be met for the accommodation to be considered ‘qualifying holiday accommodation’ in a particular year are as follows:

• The accommodation is available for at least 210 days.

• The accommodation is commercially let for at least 105 days.

• Not more than 155 days fall during periods of ‘longer-term occupation’ (this is a period of more than 31 days during which the accommodation is in the same occupation).

It is recognised that there could be difficulties meeting the letting condition if say:

• A property is occupied on a non-commercial basis by family and friends for a large part of the year.

• A property is unlet due to circumstances beyond the control of the owner (for example, poor weather during the peak holiday season or an economic downturn).

However, if the letting condition is not met, either an ‘averaging’ election or a ‘period of grace’ election can be made.

In my second blog I consider the tax implications where the conditions to qualify as a FHL are met.