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A guide on furnished holiday lets

by | Dec 21, 2022

If you’re thinking about renting a furnished property as a furnished holiday let, you may have questions about what’s involved. In this article, we’ll provide a comprehensive guide to furnished holiday lets, including starting from the basics of what is meant by a furnished holiday let so you can make sure your property is in the right requirements.

So whether you’re a first-time landlord or an experienced furnished holiday let owner, this guide will provide the information you need to successfully understand how to deal with furnished holiday lets as a landlord.

A furnished holiday let by the sea

What is meant by a furnished holiday let?

A furnished holiday let is a property that is available for short-term rental to holidaymakers. It is typically furnished with all the necessary amenities, such as beds, kitchen equipment, and linens, to make it ready for guests to use.

Furnished holiday lets are a popular option for people who want to rent out their properties for additional income, or for people who are looking for an alternative to traditional hotels for their vacation accommodations.

However, there are rules surrounding them which means landlords have to follow regulations. Especially if they want to take advantage of tax benefits and comply with the terms of their mortgage.

What are the requirements for a property to be considered a furnished holiday let?

If you’re considering renting out your property as a furnished holiday let, it’s important to understand the requirements that must be met in order for the property to be considered a furnished holiday let.

Availability conditions

In order for a property to fall into the category of a furnished holiday let, there has to be a maximum period of 201 days in which the furnished holiday let is available to be rented out by members of the public as part of their holiday.

Furnished holiday lets must also have a maximum of 31 days of continuous occupation for one tenant. Otherwise, the property will have to be signed into a periodic tenancy agreement.

Letting conditions

The letting conditions for a furnished holiday let are that it must be available for rent for at least 210 days per year. Throughout the rest of the year, the landlord can be living in the property but for these 210 days the landlord has to show there are tenants in there or they have at least moed out and avdertised the property for rent.

It is not always realistic for the furnished holiday let to be rented out for the full 210 days. This is why things like grace elections were introduced which you can read more about here.

How does the average rate of occupancy work for furnished holiday lets

In order for a property to qualify for a holiday let, it has to meet the above letting conditions for at least 105 days out of the year as seen above for tax purposes. However, if a landlord owns multiple properties in one furnished holiday let, then they may be able to average out the letting conditions for each property in order to meet the requirements.

How this works is the landlord calculates the number of days in which all of the properties they are trying to register as a holiday let have the appropriate letting condition, then they would come up with an average for all of them. If the average is above the figure for the 105 days, then the holiday lets all be classed into the category.

Under the law, it is only possible to mix all of the holiday lets in on limited company in this way and after the UK left the European Union, it is now no longer possible to mix furnished holiday lets who are in a European Economic Area and in the UK.

Furnished holiday let rules changing due to brexit

How to make an election for a furnished holiday let

An election is the declaration of the number of days the furnished holiday lets you own were in the appropriate letting condition. In order to qualify your furnished holiday lets which will need to be done for tax purposes as you try to declare the money made in a furnished holiday let business, you will need to submit this to the HMRC, known as an election.

There are two types of elections, a period of grace election and an average election as talked about. A period of grace election is when there is a failure to meet the requirements for a furnished holiday let and the landlord wants to still keep their status. In this case, they will apply for a period of grace.

This is important because holiday conditions are not the same every year but at the same time, a lot of properties need to keep the furnished holiday let status in order to meet the terms of a mortgage or insurance policy. This means if a landlord is not able to make their property comply, they may face a fair amount of financial loss.

It is also possible to use an averaging election and a period of grace elections at the same time. The laws on this are fairly complicated so you will need to visit the government’s website here for a guide on how you can work your way through it as you complete a self assessment.

What should you do if your property doesn’t meet the requirements for a furnished holiday let

If your property doesn’t meet the requirements for a furnished holiday let, there are a few options you should consider. First of all, you can try to make the necessary changes in order to meet the criteria as changes may not be as hard as you think spending on what your property was disqualified for.

For example, if your premises are not available for letting for more than 105 days of the year, you may not be far off this number and you may just need to open up your property more and encourage more bookings. Perhaps it means you have to have better marketing or involve better letting agents. It is common for landlords who have no agent to face this problem in the furnished holiday let industry.

Furthermore, you could use the average election to bring this number up. By providing HMRC with an average of when your property was let out throughout the year you may be able to bump up your property above the required 105 days for the year to class it as a furnished holiday let.

Finally, if your property does not meet the requirements for a furnished holiday let, it may be wise to consider other options for generating an income from it outside of turning it into a holiday home. For example, you could find a tenant to live in the property long term or perhaps turn the property into a commercial property and find a commercial tenant.

This all depends on what the demand in the area is like for housing as some tourist destinations still require people to live there for the long term whereas others are dominated by commercial property development.

A fancy furnished holiday let

What taxes does a furnished holiday let benefit from?

Particularly when it comes to capital gains tax there are clear incentives for landlords to qualify their homes as a furnished holiday let as there are financial incentives for doing so.

Income tax

In terms of the amount of rental income the property has to make throughout the year, there is no minimum for the property to be classed as a furnished holiday let. In fact, if a furnished holiday let doesn’t make any profit once you take away the expenses from the property such as a house mortgage or home insurance, it may be acceptable to even roll over the tax loss into the next financial year.

This is the same as other types of tenancy agreements so in this sense there is no real advantage here for landlords who own furnished holiday lets. Find out what the personal income tax rates are here on the government website.

Capital gains

Furnished holiday lets are eligible for the business asset disposal relief scheme which was previously known as the entrepreneurs relief. In order to qualify for this relief,  you will have to qualify for the following circumstances for a minimum of two years.

  • You are the sole trader or qualified business partner in the furnished holiday elt
  • This has been going on for at least two years

The full specifications for this relief are found here but they essentially mean that there is a 10% relief for all the qualifying assets of a furnished holiday let when the property is compiled with regulations.

What happens if you’re selling assets lent to a furnished holiday let business?

You can qualify for the business asset disposal relief (BADR) if you have lent assets to a business too and now you want to sell it. For example, if a furniture company lent furniture to a furnished holiday let and the property is sold for a profit, the furniture can be paid back without being taxed.

To qualify, both of the following must apply:

  • you’ve sold at least 5% of your part of a business partnership or your shares in a personal company
  • you owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares – or the date the business closed

Stamp duty

Stamp duty and land tax is not available for stamp duty exemption under any circumstance. This is because it cannot be the purchase of a resident’s first home. This means stamp duty will have to be paid at a rate of 3% in most cases.

How do mortgages work in furnished holiday lets?

Because holiday lets are seen as a second income to buyers, much like buy-to-let properties, they have a different set of rules to the traditional residential mortgage. However, the mortgage payments from a furnished holiday let can still be deducted from the rental income of a property.

This is another advantage that landlords look for in order to reduce their tax bill. However, the holiday let owner must also make sure they are meeting the requirements for a holiday let as it can lead to friends from their lender if they do not follow the minimum letting requirements and other requirements listed in their mortgage policy.

A mortgage application for a holiday let

What is a private use adjustment for a furnished holiday let?

A private use adjustment for a furnished holiday let is a tax adjustment that is applied to account for any personal use of the property by the owner. Under UK tax law, a furnished holiday let is considered a business, and the income from the rental of the property is subject to tax.

However, if the owner uses the property for personal purposes, such as for vacations or as a second home, a portion of the income may be exempt from tax. The private use adjustment is a way to calculate the amount of the exemption and adjust the taxable income accordingly.

This can help ensure that the owner only pays tax on the rental income that is derived from the property’s use as a holiday rental, and not on any personal use.

In conclusion

In conclusion, furnished holiday lets are a popular option for generating income from your property. By providing a self-catering holiday accommodation that is furnished and equipped with all the necessary amenities, you can attract holidaymakers looking for an alternative to traditional hotels. 

However, it’s important to understand the requirements for a furnished holiday let, as these can vary depending on the specific regulations in your area. If you do not know about the regulations then it may well be that you lose the furnished holiday let status and the capital gains benefit that most landlords desire.

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