Learn advices of UK tax for holidays let. Tax credits, eligibility conditions and how to claim tax relief. VAT rules for holiday lettings.

Understanding Changes to Furnished Holiday Let (FHL) Regulations in the UK

Real estate laws in the UK are continuously evolving, and this year brings several changes for owners of furnished holiday lets (FHL). As an FHL owner, it is crucial to stay informed about these changes to ensure compliance and to optimize the benefits of your property.

Criteria for Furnished Holiday Lets (FHL)

For a property to be classified as an FHL, it must meet specific criteria set by UK tax authorities. These requirements include:

1. Rental Period: The property must be available for rent for more than 210 days in a year.
2. Actual Letting: It must be rented out for at least 105 days in a year.
3. Guest Restrictions: The tenants must not be friends or relatives of the owner.
4. Location: The property must be located in the UK or the European Economic Area (EEA).
5. Short Stays: Properties occupied by a family or single person for short stays of more than 31 days also qualify.

Benefits of Owning Furnished Holiday Lets

Owning an FHL provides several financial and tax benefits:

1. Retirement Accruals: Income generated from your FHL allows you to make pension contributions.
2. Council Tax Exemption: FHL owners are exempt from paying council tax but must register for business rates, which are typically lower.
3. Tax Deductions: You can deduct costs for furniture, appliances, and repairs from your pre-tax income.
4. Capital Gains Tax Relief: FHL owners qualify for capital gains tax reliefs, including business asset disposal relief, business asset rollover relief, and gift hold-over relief.

Applying for Benefits

You can claim capital allowances for necessary items or improvements made to your FHL. These include:

• Furniture
• Appliances
• Light fittings
• Electrical appliances
• Other utensils (excluding heating and electricity costs)

Allowable Tax Expenses

As an FHL owner, you can deduct the following expenses from your revenue:

• Interest payments on loans or mortgages
• Advertising and promotion costs
• Home insurance
• Heating and electricity costs
• Cleaning costs
• Gardening costs
• Utility bills
• Real estate agent or management company fees

These deductions help reduce your taxable income, thereby lowering your tax liability.

VAT Obligations

If your rental income exceeds £85,000 per year, you are required to register for VAT. This applies if your property generates a weekly income of £1,635 for all 52 weeks of the year. While most FHL owners may not reach this threshold, it is essential to be aware of this rule, particularly if you own multiple properties.

Conclusion

Staying updated with the latest regulations and leveraging the benefits associated with FHL ownership can significantly enhance the profitability of your Airbnb or other short-term rental properties. Properly managing your FHL as a business, ensuring compliance with tax laws, and optimizing allowable deductions will help you maximize your investment returns.