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Tax on furnished holiday lettings
If you let out a furnished holiday home in the European Economic Area (EEA), your rental income may be treated differently for tax purposes from other rental income. However, your property must keep to some rules known as 'qualifying tests'.
Rules for furnished holiday lettings
To make sure your property counts as a holiday letting, it must be:
- in the EEA
- furnished
- available for commercial letting to the public, as holiday accommodation, for at least 140 days a year
- commercially let as holiday accommodation for at least 70 days a year (the rent must be charged at market rate - not at cheap rates to friends and family)
The holiday lets must be (both):
- short term lets of not more than 31 days
- the only lets for at least 210 days (211 days in a leap year)
Other restrictions
You can't let the property as a holiday let to the same person for more than 31 days in the year.
However, if you meet all the qualifying tests for 210 (or 211) days there are no restrictions on longer lets in the remaining 155 days But these longer lets do not count as holiday lets.
Recent changes to the furnished holiday letting rules
Under changes announced in the 2009 Budget, the furnished holiday lettings rules will be withdrawn from 6 April 2010 for Income Tax and Capital Gains Tax purposes, and from 1 April 2010 for Corporation Tax.
Further details will be given in the 2009 Pre-Budget Report, but it is intended that landlords of furnished holiday accommodation will be treated in the same way as other landlords.
Working out your taxable profit
Your profit on furnished holiday lettings is worked out in the same way as for other rental income, except that you claim 'capital allowances' rather than the 'wear and tear' allowance.
Examples of expenses that qualify for capital allowances include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.
You can learn more about capital allowances and working out profits for furnished holiday lettings in HM Revenue and Customs' (HMRC) related article on expenses and allowances and in the land and property help notes of the Self Assessment tax return.
If your property doesn't qualify as a holiday let, you will be taxed as normal for residential property lettings.
Tax advantages of furnished holiday lettings
With EEA holiday lettings, you can realise a tax advantage if you pay tax in the UK, make a loss on your earnings from the property, and when you sell the property:
If you make a loss
If your business is run on a commercial basis any loss can be offset against your other income, not just the property income, reducing your overall tax bill. Or you can carry the loss forward and offset it against future letting profits.
Learn more about offsetting losses in the land and property help notes of the Self Assessment tax return (link above).
When you sell the property
You may be able to take advantage of Capital Gains Tax reliefs, such as 'Business Asset Roll-Over Relief'. For example, if you reinvest within three years in another furnished holiday letting property or certain other assets costing the same as or more than you got for the property you have sold, you may be able to defer payment of Capital Gains Tax until you dispose of those new assets.
To understand the rules fully, and find out about other reliefs you may qualify for, ask your professional adviser or Tax Office about Capital Gains Tax reliefs on the sale of furnished holiday lettings property.
How to declare your income and expenses
You need to declare your rental income from furnished holiday lettings using the land and property pages of your Self Assessment tax return. If you don't receive one automatically, contact your local Tax Office, or register online at the HMRC website.
Allowable expenses
Some expenses relating to the property can be taken into account to reduce your tax bill. For a detailed list of expenses you can deduct and those you can't, see HMRC's related article and the notes to the land and property pages of the Self Assessment tax return.
What paperwork do you need to keep?
In order to be able to complete the land and property pages you need to keep:
- a note of all the rent you receive and the dates you rent out the property
- a record of your business expenses (see the Self Assessment land and property pages help notes for what counts as business expenses)
- sales receipts, invoices and bank statements
- all these records for six years after the tax year concerned
If you need help completing the pages, call the Self Assessment helpline on 0845 9000 444 (open 8.00 am to 10.00 pm seven days per week).
