You may have acquired a property in a will and be reluctant to sell it, or have invested in a property to generate extra income, perhaps in retirement. In these circumstances, you may use the property as a furnished holiday let (FHL).
FHL status offers a range of tax benefits and Milsted Langdon Chartered Accountants’ property tax specialists can provide expert advice to help you take maximum advantage of these.
To qualify as an FHL, the property must furnished in way that makes it suitable for normal occupation, be in the UK or European Economic Area (EEA) and commercially let, i.e. with the aim of making a profit, which excludes lettings to friends or relatives for a zero or nominal charge.
The property must also pass three tests to qualify as furnished holiday letting:
- it must be available for commercial holiday lettings to the public for at least 210 days in a tax year
- it must be commercially let to the public for at least 105 days in the tax year
- it must not be let for periods of more than 31 days for more than155 days in a tax year.
If your property qualifies as an FHL, it will be treated as a business, allowing you to claim capital allowances. This means your spending on fittings, furniture and equipment (and certain integral features, e.g. heating or plumbing systems) each year, up to a certain limit, can be written off for tax purposes in the year in which you spent the money. The amount you can spend and claim 100 per cent tax relief stands at £500,000 until 31 December 2015.
Another benefit of a qualifying FHL is that it may be eligible for certain capital gains tax business reliefs, including Entrepreneurs’ Relief, which reduces CGT payable on capital gains on the disposal of the property to ten per cent (up to a lifetime limit of £10 million).
An FHL may also qualify as a business asset for rollover relief purposes. If you make a gain on another business asset, the CGT can be deferred if you acquire a FHL within three years or, if you make a gain on the disposal of a FHL, it may be deferred if you invest in a further qualifying business asset within three years of disposal.