Furnished Holiday Lets are a set of tax rules and benefits which can be used to reduce personal taxation for the owner. The rules are currently being repealed by the coalition government, and there is some confusion over what will happen, but for now a summary of the rules is below.

• Qualifying properties must be in the UK.
• The qualifying property must be made available for holiday lets for 140 days in a tax year, and let for 70 days. Note the letting period of 70 days must be at the market rate and not at nominal rates to friends and family.
• A single booking must be for less than 31 days. Longer lets of between 31 and 155 days are permitted, but those lets do not contribute towards reaching the minimum qualifying periods described above.

What tax advantages are there in a Furnished Holiday Let?

Any losses made on the property can be offset against the owner’s other income, not just the income on the holiday let. To define the taxable amount of profit or loss, a number of expenses can be claimed against the rental income:

• The letting agent’s fees.
• Accountancy fees or legal fees incurred.
• Buildings and contents insurance.
• Interest on a mortgage or home loan.
• Maintenance and repair to the property.
• Service bills including utilities, council tax and ground rent.
• Other professional services such as gardening and cleaning.
• Direct costs relating to bookings, such as advertising and marketing, stationary, phone calls etc.

Note that certain costs, specifically the owner’s time, a loss on the sale of the property or capital costs, or capital costs such as assets like furniture and electrical goods.

Instead equipment in the property is handled as either a Renewals Allowance, or Capital Allowance. These costs can also be offset against income to reduce the taxable profit.

Properties which qualify as Furnished Holiday Lets can also qualify for benefits when sold. Capital Gains Tax (CGT) is chargeable on any profit from the sale of a holiday let. This is currently 18%, but is under review as with FHL as a whole. At the current time any CGT payable can be deferred for up to 3 years or rolled over into Business Asset Roll-Over Relief where profit from the sale is re-invested into new assets.

Changes to Furnished Holiday Lets – 2011

The rules around FHL were under review and to be repealed by the previous Labour government from April 2010. This was deferred after the General Election and the current coalition government have since announced that changes to the rules will now apply for the 2010-11 tax year. The changes have yet to be officially confirmed, but the key proposals are:

• The minimum qualifying period for which the property is made available for lets is to be extended from 140 days to 210 days.
• The minimum qualifying period for which the property must be let is to be extended from 70 days to 105 days.
• Relief can only be offset against future profits on that same property, not against an individual’s other sources of income.

The changes will effectively prevent owners from classing their property as a Furnished Holiday Let if they take a 6 month let during the quieter winter months. Their property will not be available for holiday lets for the minimum 210 days (or around 7 months).

Secondly, the change in how losses can be offset (only against future profits on that holiday let) will reduce the benefits of FHL for many and require more long term planning to take advantage of the rules.