Furnished Holiday Lettings – Summary of Tax Rules

If a property meets the conditions to qualify as a FHL, what are the tax implications and how does the tax treatment of a FHL property differ from a long term let? The tax issues relating to a qualifying FHL can be summarised as follows:

Income Tax

• Capital allowances can be claimed.

• Loan interest payments made are deductible in full. (Interest relief on a long-term let is restricted.)

• Profits are considered relevant earnings for pension purposes.

• Losses arising may be carried forward and offset against profits from the same FHL business.

Capital Gains Tax

• Since a qualifying FHL is considered a business, business asset holdover and rollover relief may be claimed.

• A gain realised on the disposal of a FHL property may qualify for business asset disposal relief.

• When a gain arises on the disposal of a FHL property, a Property CGT Return needs to be submitted within 60 days of the completion of the sale.

Inheritance Tax

• A FHL business is unlikely to qualify for business asset relief unless it forms part of a wider business (such as a landed estate).

• For a FHL business to qualify for business asset relief, it is likely that its activities would need to amount to a ‘trade’ (so similar to a B&B). 

VAT

• The income received from a FHL business falls within the scope of VAT.

• Where the owner of a FHL business has another business, it will be necessary to review total turnover when considering the VAT position.

• There will be VAT issues to consider with respect to newly constructed properties and properties that are converted to become dwellings. 

Tax planning is recommended in advance of the commencement of a FHL business.

In my third blog I consider the recent changes to the laws relating to Scottish FHLs.