Muras Matters: Furnished Holiday Lets


It will have been a difficult year so far for those who rent out their properties as Furnished Holiday Lets (“FHLs”) with the coronavirus pandemic resulting in several months of cancelled bookings. Now with many looking to take a ‘staycation’ holiday this year we thought it would be a useful to consider some of the implications of the pandemic on FHLs.


The qualifying criteria for a property to be treated as a FHL in order to benefit from the reliefs on offer are quite strict. It is important to note that to qualify the property must be located in the UK or the European Economic Area (EEA) – the EEA includes all EU countries and also Iceland, Liechtenstein and Norway. Therefore a UK resident individual owning property in France could qualify, while a property in Switzerland could not be treated as an FHL.

FHLs can be owned by limited companies, but here we are only considering property owned by individuals.

Day Tests

The qualifying criteria are based around the availability and length of letting. Broadly, the property must be:

  1. available to the public as holiday accommodation for at least 210 days in the tax year and
  2. actually be let for 105 days in the year and
  3. any letting for over 31 consecutive days to the same occupier does not count toward the 105 day test.

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, then the property will not be a FHL for that year.

Days when you use the property yourself or let the property to friends or relatives at zero or reduced rates do not count towards the number of let days since it will not be classed as a commercial let by HMRC.

The coronavirus pandemic will have a major impact for many owners this year on their ability to satisfy the availability conditions. However, there are already provisions within the FHL legislation that can be used to assist in enabling the FHL treatment to still be claimed.

Longer-terms lets of more than 31 days can be counted towards the 105 day test where the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker falls ill or has an accident, and cannot leave on time. Some owners may have had to allow holidaymakers to stay longer because of the lockdown.

If the property has not been let for at least 105 days, there are 2 options (known as elections) that can help in reaching the occupancy threshold:

  • the averaging election – Where more than one FHL is owned they can be grouped together so that the average number of days as a whole may meet the 105 day test. Not all properties have to be included in the election for averaging.
  • a period of grace election – if your property reached the occupancy threshold in the previous tax year but not in the current year, then provided there was a genuine intention to meet the test, then the 105 day test can be relaxed for one or two years. However, after the second year, the property will cease to qualify as a FHL if the let condition is not met.

It is possible if you have more than one property to use both the averaging and period of grace elections to make sure that a property continues to qualify as a FHL.

FHL expenses and losses

Another relevant point to remember in the current circumstances is that where the property has only been used as a FHL and is closed for part of the year because there are no visitors, you can still deduct all the expenses, such as insurance and loan interest, for the whole year and not just the let period, provided you have not lived in the property.

If you let part of the property as a FHL, or where you use the property privately for part of the year, then you would need to apportion your receipts and expenses on a reasonable basis.

Given the fall in letting income many FHL could make a loss this year. If your UK FHL business makes a loss, you can set the loss against your UK FHL profits of later years. Similarly, if your EEA FHL business makes a loss, you can set the loss against our EEA FHL profits of later years. However, you cannot set the losses from a UK FHL business against the profits of an EEA FHL business, and vice versa.

Business Rates

A FHL can be registered with the local council for business rates rather than having to pay council tax. The council will give the business a rateable value and if the value is below £15,000 it will qualify for small business rates relief. A FHL with a rateable value below £12,000 will receive 100% relief and then there is a sliding scale from 100% to 0% relief for properties up to a value of £15,000.

Part of the COVID support packages announced by the government was a business rates holiday for the whole of 2020/21. So if a FHL had a higher rateable value than £12,000, you still would not have to pay anything during 2020/21. This relief does not need to be applied for, and once the council have moved the property onto business rates, they will apply it automatically.

Exchange rates and foreign property disposals

Foreign property owners should take care not to assume selling their property will result in a capital loss or that any gain will be small and simply covered by their annual exemption. Given the fall in the value of sterling over recent years and in particular since the Brexit vote, owners may unexpectedly find that the capital loss or small gain they anticipated could actually turn out to be a more significant gain once exchange rates are taken into account, with capital gains tax then payable at 18% or 28%.

When considering the potential capital gain on the disposal of a foreign property it is important to remember that the appropriate exchange rates need to be taken into consideration. The exchange rate at the time of acquisition will determine the cost, whilst the rate at disposal will determine the sale value.

Our updated working arrangement – We remain ‘Open for business’

Our staff have returned to office based working on a rota basis, each attending two/three days a week, whilst continuing to work from home at other times. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.

If you would like more information on any of the above or if you require our assistance in determining if your property qualifies as a furnished holiday let please speak to your usual contact at the firm.

To see our other news items please visit our Muras Baker Jones – Blog.