Furnished holiday lets

Produced by Tolley
  • (Updated for Budget 2020)
Furnished holiday lets

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

  • Furnished holiday lets
  • Definition of a furnished holiday let
  • Territorial scope of the FHL rules
  • Under-used holiday accommodation elections
  • Averaging election
  • Period of grace election
  • Using both elections
  • The consequences of being a FHL
  • Losses
  • Set off of losses from property business against profits of an FHL business
  • More...

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 FHL 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.

The favourable tax treatment for UK FHL was extended to similarly qualifying properties within the European Economic Area (EEA) with effect from 22 April 2009. This treatment was originally non-statutory but kept the UK in line with European Union (EU) law. It was then legislated 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:

  1. a UK property business

  2. an overseas property business, see the Overseas property businesses guidance note

  3. a UK FHL business, or

  4. an EEA FHL business

The UK comprises England, Wales, Scotland and Northern Ireland. 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 ‘Losses’ below).

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:

  1. the simplified cash basis, which is the default basis for calculating profits and losses, unless certain conditions are met, see the Simplified cash basis for unincorporated property businesses guidance note

  2. the accruals basis, see the Property income ― accruals basis and Allowable property expenses guidance notes

Prior to 2017/18, profits and losses were calculated on the accruals basis, unless the gross rental profits did

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