Diversifying your business to include a holiday let can be very advantageous. Not only does it provide a source of additional income but there are a number of tax benefits if the property qualifies as a Furnished Holiday Let (FHL).
The tax advantages which are not available to other rental businesses include:
A number of conditions must be satisfied for a property to qualify as a FHL. For new lets the tests must be applied to the first 12 months of occupancy and for continuing lets the tests will be applied to each tax year. The conditions require:-
Many owners have been unable to let their properties for more than a few months in 2020 and may assume that FHL status is lost for 2020/21. This may not be the case as provided an owner can show that they had a genuine intention to let the property in the year a “period of grace” election can be made. This allows the property to continue to be taxed as a FHL provided conditions 1 and 3 above are satisfied in 2020/21 and condition 2 is satisfied in 2019/20. A similar election can be made for 2021/22 if required.
If the owner has more than one FHL an averaging election can be made to average the occupancy for all properties that are let as FHLs.
There are advantages in letting a property as a FHL but the rules are complex and advice should be taken before converting or acquiring a property. If you currently own a FHL and have failed to meet the necessary conditions in 2020 a review of your position should be carried out.