Finances - HMRC rules
Furnished holiday lets in the UK
If your property qualifies as a ‘furnished holiday let’ in the UK then there are tax and other financial benefits that apply.
If you qualify you will of course be able to set your normal running costs against your income and be taxed only on the resulting profit, but as the owner of a furnished holiday let you will also be able to claim capital allowances on items inside the property (see below), and (depending on your personal circumstances) be able to set any losses against total personal income and therefore benefit from reduced tax.
There may also be capital gains tax benefits when you come to sell the property.
In principle, according to Her Majesties Revenue and Customs (HMRC), for a property to qualify as a holiday let in the UK it must:
- be available for holiday letting to the public on a commercial basis for 140 days or more, and
- let commercially for 70 days or more, and
- let for periods of longer-term occupation (more than 31 consecutive days) for not more than 155 days during the year.
These qualifications are easily met by those intending to rent out their cottage for normal holiday lets. Note: a property that is let on a long-term basis cannot be regarded as available for holiday lettings.
For more detailed information on how the taxman treats furnished holiday lets, visit the HMRC website section entitled 'Furnished holiday lettings: contents’.
Because the tax and other financial benefits can be considerable but sometimes complicated, we would advise that you to discuss the specifics of your situation with your accountant. The costs of using a good accountant should be more than offset by the savings that he or she should obtain for you, especially if you have capital expenses.
Capital allowances
Capital allowances can be claimed on inside items such as furniture and kitchen equipment, and outside equipment such as vans and tools. This means that a proportion of the costs of capital items will be free of tax.
However, the rules can be complicated, for example when claiming capital allowances during a renovation, and so we advise using an accountant to discuss any significant capital allowances to maximise your net income.
When keeping your books, it is important that you include all capital items, and we recommend that you use a separate sheet for capital items because they are treated differently for tax purposes from normal allowances (see the page on bookkeeping).
To find out more, select a topic from the links above.
