What Is A Furnished Holiday Let?

Pool view of a furnished holiday let - Assets For Life

Holiday lets are a kind of short-term rental accommodation, often in popular holiday destinations such as tourist hotspots and large cities. Owning a holiday let and renting it out can be pretty lucrative for property investors, but they are very different from standard rental properties. For instance, there is a statutory definition for a furnished holiday let (FHL) that you should be aware of. In this blog, we will explore what qualifies as a holiday let, the tax rules surrounding furnished holiday lets, what mortgages are available for holiday lets and more.

  • What Qualifies as a Furnished Holiday Let?
  • What Happens if a Furnished Holiday Let is Not Occupied for 105 Days?
  • Can I stay at my Furnished Holiday Let?
  • Mortgages for Furnished Holiday Lets
  • Tax Rules for Furnished Holiday Lets

What Qualifies as a Furnished Holiday Let?

According to the HMRC, a property must meet the following criteria to be a furnished holiday let:

 

  • Situated in the UK or European Economic Area, including Iceland, Liechtenstein or Norway
  • Furnished, i.e. including sufficient furniture for normal occupation and guests must be allowed to use the furniture
  • Commercially let out to the public for at least 210 days per year
  • Occupied by paying tenants for at least 105 days 
  • Lettings must not exceed 31 continuous days by the same tenant for more than 155 days


Properties that meet this definition can have some tax advantages over other kinds of lettings. These include allowances for furniture and furnishings, Capital Gains Tax (CGT) relief, and more – see the following section on tax rules for furnished holiday lets for more on this.

What Happens if a Furnished Holiday Let is Not Occupied for 105 Days?

If you own several FHL properties and one or more do not get let for 105 days per year, you can apply the average occupancy rate to all of your properties. This can only be applied to properties owned by the same business, and properties in the UK and EEA cannot be combined for the purpose of averaging occupancy. Another exemption to this rule applies if you had every intention to let the property for at least 105 days but were unable to due to cancellations or other mitigating circumstances. This is called a period of grace exemption and is allowed for two years in a row, but by the third year, failing to let out the property for at least 105 days means it will lose its FHL status.

Can I stay at my Furnished Holiday Let?

Yes, you can, and you can offer it to family and friends too for free or at a discounted rate. Many owners of furnished holiday lets do this, especially during the off-season of an FHL in a popular tourist destination. However, this cannot count towards your 105-day letting period, so consider this before using the property yourself or allowing family and friends to stay there.

Mortgages for Furnished Holiday Lets

Mortgages for furnished holiday lets are available, although most lenders will ask for a deposit of 25% or more. This equates to an LTV (loan to value) ratio of 75%. They may also offer the mortgage with a higher interest rate than those for regular residential properties. Some lenders also have other criteria for FHL mortgages, such as a minimum value for the property you are buying, a minimum annual income or minimum rental charges for the property. This can make it more difficult to get a mortgage, but there are several lenders who offer FHL mortgages, so shop around to find the best deals available.

Tax Rules for Furnished Holiday Lets

Many property investors prefer holiday lets as they have a higher rental yield than residential lets and offer some unique tax benefits. However, the UK government announced in March 2024 that the Furnished Holiday Lets tax regime will be abolished from the next tax year. This has changed some of the tax rules for furnished holiday lets, meaning that some reliefs are no longer available.

Note: these tax changes will not come into effect until April 2025.

Mortgage Interest Relief

Currently, owners of furnished holiday lets can offset 100% of the interest on their mortgage against their tax bill. After April 2025, they can only offset 20% of the mortgage interest against taxes, just like normal residential lets.

Profit Splitting for FHLs

Right now it is possible for FHL owners to split the profits from their rental income with lower-earning partners to avoid paying higher income tax rates. After April 2025, this will no longer be allowed, and income can only  be split based on ownership share. For example, if Dave the landlord owns 75% of a property and his partner Joanna owns 25%, even though Joanna isa in a lower tax bracket, Dave cannot split the profits any other way than 75:25 as that is their ownership split.

Capital Gains Tax Relief

When you sell your furnished holiday let, you can reduce your tax burden with Business Assets Disposal Relief, which allows for a 10% tax rate on all properties up to £1 million per person, lower than the usual 20% CGT. Business Assets Rollover Relief is also available which gives owners the option to defer CGT if they are reinvesting in another qualifying asset such as another property. Gift Holdover Relief also currently applies, which means that if you give away business assets or sell them at a reduced price, e.g. to a family member or friend, you don’t have to pay CGT. Again, this will not be the case after April 2025.

Capital Allowances

Furnished holiday lets operate under business rules which means that you can claim 100% of the costs of fixture, fittings, furniture, white goods, electrical and plumbing equipment and morte against taxable income. After April 2025, this will no longer be the case, although owners of FHLs can still claim tax relief on replacing certain domestic items in line with other property businesses. 

Pension Contributions

Earnings from an FHL is currently classed as Net Relevant Earnings (NRE), which allows FHL owners to make more tax-free pension contributions. After April 2025, FHL rental income will not count towards NREs, which reduces the owner’s capacity for tax-free pension contributions.

 

While the tax benefits of furnished holiday lets are reduced, they are still a great investment opportunity and with these tax changes a lot more will be available on the market, which could be a great opportunity for the budding property investor. As always, a tax adviser or accountant who specialises in property investment and holiday lets can advise you on how to legally reduce your tax obligations as much as possible.



Want to find out more about holiday lets and property investment? Join us at an Assets For Life FREE property event to learn everything you need to know about starting your own property business – click the button below to learn more or book your place.

Picture of Liam Ryan
Liam Ryan

Liam J Ryan is a Forbes-featured, 8-figure property business entrepreneur, best-selling author, mentor, host, and co-founder of Assets For Life.

More About Liam

You May Also Be Interested In...

Featured Property Investment Events & Courses

The Property Deal Packaging Summit

The Property Millionaire Bootcamp

The Serviced Accommodation Bootcamp

Candidate Success Stories

Bricks-Mortar-Book

Liam Ryan's
Best Selling Book

Claim Your Free Copy