The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
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.
See also Simon’s Taxes B6.4 and HMRC Helpsheet HS253.
The treatment of UK FHL is extended to those within the European Economic Area (EEA) that would qualify if they were located in the UK.
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 business for individuals guidance note
a UK FHL business, or
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).
The taxpayer can choose whether they wish their EEA holiday lettings business to be taxed under the FHL rules or under the normal rules for property businesses.
In most cases, the FHL rules are the better option due to the capital gains tax reliefs on disposal, but you should consider the taxpayer’s circumstances. For instance, once the foreign property becomes an FHL, they cannot use a profit on this property to offset against a loss on another, foreign non-FHL property, as discussed below.
There are two possible bases of assessment that can be used to calculate UK FHL business and EEA FHL business profits and
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