Will your rental property qualify as a Furnished Holiday Let post-Covid 19?
Following a 12 month period where holiday let properties were unable to welcome guests due to national lockdowns, it’s important to be aware of how this affects your tax position.
There are special tax rules for rental income from properties that qualify as furnished holiday lettings (FHLs). These rules often lead to lower taxes to be paid by the owner when reporting the income.
If you let properties that qualify as Furnished Holiday Lets:
- you can claim Capital Gains Tax reliefs such as Business Asset Rollover Relief and Entrepreneurs’ Relief which are valuable when you come to sell the property
- you are entitled to get tax relief for loans to purchase the property
- you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
- the profits count as earnings for pension purposes
What are the Furnished Holiday Let occupancy rules?
To benefit from these rules, your property needs to meet certain occupancy rules and it must meet all 3 to qualify.
- the property must be available to be let as an FHL for 210 days
- it must have actually been let as an FHL for 105 days ( do not count periods that exceed 31 days unless it was due to unforeseen circumstances)
- the total of all lettings that exceed 31 days must not exceed 155 days
For the purposes of these calculations, you consider the tax year 6 April – 5 April unless it is the first year of let when you can consider the first 12 months from when the letting began.
What are the issues?
Whilst it is possible to claim that the property was available to let for 210 days it is probable that you have not reached the required 105 days actually let in the year to 5 April 2021.
If this is the case you have 2 options to retain the valuable FHL reliefs.
Averaging Calculation for Furnished Holiday Let
This allows you to average the days let across multiple properties if you own more than one but this is unlikely to help for this particular year.
Period of Grace Election
As long as you can show you had a genuine intention to meet the conditions and that the property met all the conditions in the year before the claim (19/20 in this case) you can make a period of grace election for the property to still qualify as an FHL.
You can also do this for a second year running if necessary but after 2 consecutive years of not qualifying the property will cease to be treated as an FHL.
What is the time limit for the election?
You have until 1 year after 31 January following the end of the tax year in question. So for 20/21, you can make the election up to 31 January 2023.
Can I claim expenses while the property had no guests due to Covid 19?
If your property is only used as an FHL and is closed for part of the year because there are no customers, you can deduct all the expenses, such as insurance and loan interest, for the whole year, provided you do not live in the property.
What can I do with a UK Furnished Holiday Let loss?
You can only carry it forward and set it against future UK FHL profits. There are no special loss reliefs due to Covid 19
Do you need help?
Find out more about our specialist tourism and hospitality department