Furnished holiday lets

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Furnished holiday lets
  • Definition of a furnished holiday let
  • Under-used holiday accommodation elections
  • The consequences of being a FHL
  • Losses
  • Jointly held FHLs
  • Reporting
  • Cessation of an FHL business
  • VAT on provision of holiday accommodation

This document discusses the conditions to qualify as FHL, advantages of being a FHL, under-used holiday accommodation elections, treatment of losses, implications of joints held FHLs and VAT on provision of holiday accommodation.

 

Whether or not a property qualifies as a furnished holiday let (FHL) can make an important difference to the taxation implications. In particular, the letting of furnished holiday accommodation can benefit from a more beneficial regime in some respects. The main advantage of FHLs is that they are treated like a trade for certain purposes even though they are not actually taxed as trades so there is no Class 4 national insurance charge.

Since 22 April 2009, the favourable tax treatment of UK FHLs has been extended to similarly qualifying properties within the European Economic Area (EEA). This treatment was non-statutory but kept the UK in line with EU law. This treatment was legislated with effect from 6 April 2011. The EEA  comprises the member states of the EU plus Iceland, Liechtenstein and Norway.

For income tax purposes, the taxpayer must categorise rental profits from land and buildings as either:

  • a UK property business
  • an overseas property business, see the Overseas property businesses guidance note
  • a UK FHL business
  • an EEA FHL business

England, Wales, Scotland and Northern Ireland make up the countries of the UK. The Isle of Man and the Channel Islands are treated as overseas for the purposes of the legislation.

The calculation of the profits and losses is the same no matter the category of property business, but the profits and losses must be kept separate due to the rules on set-off of losses (see below).

Therefore, from 2017/18 onwards, there are two possible bases of assessment that can be used to calculate UK FHL business and EEA FHL business profits and losses:

  • the simplified cash basis, which

More on Taxation of property income: