Most buy-to-let property is let on short leases to a single tenant. The income from rents is treated as a property business, but a number of reliefs available to other trading businesses are not available to buy-to-let landlords.
However, if these same properties were let as Furnished Holiday Let (FHLs) property, more advantageous tax benefits may apply.
If you let properties that qualify as FHLs:
- you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders),
- you are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures, and
- the profits count as earnings for pension purposes.
To benefit from these rules, you will need to work out the profit or loss from your FHLs separately from any other rental business.
Accommodation can only qualify as an FHL if it passes 3 occupancy tests
- If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be an FHL for that year.
- Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year. Do not count any days when you’re staying in the property. HMRC do not consider the property to be available for letting while you are staying there.
- You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.
Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident, and cannot leave on time or has to extend their holiday due to a delayed flight
These notes cover the basics and there are other rules that may help you to average occupancy stats to meet the above criteria.
There are significant CGT benefits to reorganising appropriate lets as FHLs and we would encourage landlords who would like to consider this option, to contact us for more information.