Furnished Holiday Let Rules

In this video is going to look at furnished holiday lets. Now furnished holiday lets are a special type of rental property and it entitles the tenant to occupy a fully furnished, self-catering property for a limited period. Might as well. I’ve said that already. Now there are very strict rules as to what makes up a furnished holiday let and these must all be in place. So as per the title, the property must be furnished for its normal occupancy. So what I mean by that, it has a bed, possibly bedding TV, white goods, lounge, dining room furniture, things like that. So it must be fully furnished for normal occupancy. It’s must be available for commercial letting to guests for at least 210 days a tax year, and be actively promoted. Commercial lets, the intention there is to make a profit, that is a definition of the commercial. So if you have a member of your family living there at a reduced rate, it is not a commercial letting and it possibly will not qualify for a holiday let if it’s occupied by family at a reduced price.

It must be rented out as holiday accommodation to the public for at least 105 days again, time there, and the family would not count for those 105 days because they are not counted as part of the family. It needs to be in the UK or the European Economic Union. Yes, even after Brexit, that rule still applies. And the tricky one is if it’s rented to the same person for more than 31 days, there should not be any more than 155 days of this type of longer term rental. So it has to be let for 31 days or less, must be let as a holiday let for at least 105 days in total for the tax year, and available and advertised for 210 days in the tax year. So it is treated differently from other property because this is deemed as a separate type of investment property. If you have several furnished holiday lets, then they can be totaled together and there’ll be one total for the UK and one total for the European Economic Union.

So what are the advantages and disadvantages of having a furnished holiday let? Well the tax advantages are capital allowances can actually be claimed for the kitting out of the property. That’s not available for normal rental properties. Income from the furnished holiday let, now this might confuse some of you, is classed as relevant earnings in order to calculate what you can have as pension contributions. So it’s like, whoa, what’s all that about? So technically if you pay into a pension pot, you can have up to a certain percentage of your income that you can pay into a pension contribution without incurring sort of other taxes and penalties and blah, blah, blah, blah, blah. So normally it will be based on your PAYE income and your self-employment income. Normal rental property income does not count, but furnished holiday let is counted as being relevant income for pensions.

You can claim a small business rates relief but you do not pay council tax. So you think way-hay, this is good. So technically it is a small business, you would have business rates, but if it’s under a certain amount of money, you can claim a small business rates relief, and therefore not actually pay anything. And as I’ve already said that you can treat several furnished holiday lets as one business. But obviously where there are advantages, there will be disadvantages.

Now the main disadvantage is if your income from furnished holiday lets is over £85,000, then you have to register for VAT and charge VAT on the rental income. Now that’s quite a bit of money that furnished holiday let has to go for, that’s going to be quite a few thousand pounds a month, so it may not initially affect you. But if you get a portfolio of furnished holiday lets, because they’re treated as one business, then you may get into the situation of your income will be over £85,000.

[inaudible 00:05:51] holiday letter property losses if you make any, they cannot be set against any other income. They can only be carried forward and used against any future profits on the same furnished holiday let business. Now there is this thing in London that actually you can only rent out property for 90 days without having to have some sort of planning permission and jump through a whole load of hoops with planning, et cetera, et cetera. So on the whole, London properties will never be classified as furnished holiday lets so just be aware of that if you are based in London and that does cover all London boroughs.

So we know about the income being over £85,000, you have to charge VAT. We know this is a separate business, so it’s great. So if it was a separate business, you must be able to have any allowable expenses. So here is a really rough guide as to what kind of allowable expenses you can have. It’s all going to be related to if it’s wholly and exclusively and necessary for the running of the furnished holiday let. So you’ve got things like maintaining the property, any mortgage interest you have on it, cleaning, gardening services, insurance for it, advertising in order to get clients in, utility bills, waste, et cetera. If you have to buy cleaning materials so the tenants can clean. Is that going to happen? Don’t know. But you might have a cleaner that goes in to do it.

You might have welcome packs that you put in place, which could be just printed documents to say, these are the types of things you can do in the house or your house rules. But some places do offer a welcome pack, like just going into a holiday home for a week. Here’s some bread, cheese, milk, et cetera. So all that would be allowable costs for the furnished holiday let.

Now, as this video is being done and we’re still in COVID situations, there is an issue that might arise about various lockdowns and you might not be able to hit the terms and conditions for the furnished holiday let. However, if you had the intention to hit the qualifications, then you can opt for a period of grace election. So this looks at whether in the previous year, you did hit the qualifying levels and this year, you marketed the property to the same level as prior year, but then because people weren’t able to travel, you weren’t actually able to take into account any bookings. But think about the council bookings you have, if you can justify, yes, it would have been let for more than 105 days, take those into account and you should be able to allow a grace period.

Once a property quantifies on a furnished holiday let in one tax year, you can elect to treat it, to qualify for up to two years later. But this grace election must be made in the first year in which the letting condition is not met. My advice to you contact a specialist accountant or a specialist advisor about this, but there are ways of doing it. And also if you treat the whole portfolio as property of one business, you may find that if you don’t hit the period for one property, but you do for another, add them together, the averaging will mean you actually make it. So that in a nutshell is your furnished holiday lets. 105 days actually commercial let, 210 days it has to be advertised as available. Any problems, feel free to get in touch. Cheers then. Bye.

 

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