Introduction:

The landscape of furnished holiday lettings (FHL) in the UK is poised for significant change following the Spring Budget 2024 announcement that the government intends to abolish the FHL tax regime. This pivotal shift marks a crucial moment for landlords and investors who have long benefited from the various tax advantages associated with FHLs. 

The exact details of the proposed abolition are yet to be issued. This will become clearer once draft legislation is published. In the meantime, we break down the key components of the current tax regime for furnished holiday lettings (FHLs), and why you should consider submitting a Capital Allowances claim sooner rather than later. 

What Are Furnished Holiday Lettings?

Furnished Holiday Lettings are a specific category of rental property in the UK (or EEA) that are available for short-term rental by tourists. To qualify as a FHL, a property must be adequately furnished and meet certain conditions regarding availability and actual letting duration.

Key Conditions for a Property to Qualify as a FHL:

• Availability: The property must be available for commercial letting to the public as holiday accommodation for at least 210 days per year.
• Letting: It must be let commercially as holiday accommodation to the public for at least 105 days per year.
• Pattern of Occupation: The property cannot be let for periods of longer-term occupation (31 continuous days or more) and for more than 155 days during the year in this pattern to qualify. 

Tax Advantages of Furnished Holiday Lettings:

Owning a FHL can be financially advantageous, particularly from a tax perspective:

• Profits Count as Earnings for Pension Purposes: This can help landlords increase their pension contributions.
• Capital Gains Tax (CGT) Relief: FHLs are eligible for reliefs such as Business Asset Rollover Relief, Entrepreneurs’ Relief, and Hold-Over Relief, potentially reducing the CGT payable upon disposal.
• Capital Allowances: Owners can claim for items such as: 
  • Furniture
  • Equipment
  • Beds
  • Washing machines
  • Fitted kitchens
  • Heating
  • Plumbing
  • Electrics and lighting;  and much more, thereby reducing the taxable profits. 

How to Maximise Your FHL Investment:

• Quality and Compliance: Ensure your property is well-maintained and meets all regulatory requirements.
• Marketing: Effective marketing strategies can help ensure you meet the minimum letting requirement.
• Record Keeping: Maintain detailed records of lettings and availability to satisfy HMRC requirements.

Conclusion:

Furnished holiday lettings offer a unique opportunity for property investors looking to diversify their portfolios and benefit from the lucrative holiday market. However, the benefits come with a set of strict requirements, particularly concerning how often and how you let your property. By understanding and adhering to these rules, you can maximise both the occupancy and profitability of your FHL.

With the upcoming changes and uncertainty to the tax regime, we urge owners to consider utilising the tax benefits now and submitting a Capital Allowance claim on your FHL. 

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