UK: Furnished Holiday Lets: What Are My Options?

Furnished holiday lets (FHLs) are hitting the headlines once again following the Upper Tribunal's landmark ruling in the Pawson Case, in which it was decided that a FHL was not eligible for business property relief (BPR) as it was held mainly as an investment.

When the FHL legislation was introduced in 1984, HM Revenue & Customs (HMRC) accepted that FHLs qualified for BPR on actively managed holiday lets. But it has subsequently changed its view. Pawson was effectively a test case, and a number of other cases will have been held up awaiting its result. However, all may not be lost as hopefully the case will be taken to the Court of Appeal on the back of a fighting fund.

Despite the uncertainty surrounding BPR and other changes in recent years, it's worth being aware there are still some helpful tax rules specific to FHL businesses.

Qualifying as a FHL

Briefly, to qualify as a FHL the property must be in the UK or the EEA, and it must be let fully furnished on a commercial basis for at least 105 days each year on short-term lets that last no longer than 31 days. It must be also be available for at least 210 days each year, and lets longer than 31 days are restricted to a period of no more than 155 days per year.

It may still be possible to qualify even if you don't quite hit the required number of let days. It is worth reviewing whether the advantages of qualifying would outweigh the disadvantages, and how much effort you put into trying to meet all the rules.

FHL advantages

Advantages include the ability to claim capital allowances on furnishings and integral features such as plumbing and wiring. Entrepreneurs' relief may be available on the sale of a FHL business, reducing the rate of capital gains tax from 28% to 10%. Gains can be held over on a gift of a FHL and certain gains can also be rolled over into the purchase of a FHL.

Disadvantages

Unfortunately, it is no longer possible to set FHL losses against other income and they can now only be set-off against future FHL profits of the same business, with UK and EEA FHLs treated as separate businesses. Losses cannot be offset against non-FHL rental income.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.