Landlords should be aware of the different rules which apply to furnished holiday lets and private rented properties, as the tax implications can be enormous.
Privately rented properties that are not a principal private residence, and therefore do not qualify for principal private residence relief, are normally subject to capital gains tax at 18 per cent or 28 per cent on disposals – a cost of potentially tens of thousands of pounds.
However, where properties are furnished holiday lets, they may be eligible for entrepreneurs’ relief and are therefore subject to capital gains tax at 10 per cent on disposal.
There is also a further tax advantage to furnished holiday lets that will make a more immediate difference. New restrictions on mortgage interest relief, which came into effect on 6 April 2017 and which threaten to move landlords into higher income tax bands, do not apply to furnished holiday lets.
For a property to be considered as a furnished holiday let, it must meet three conditions, set by HM Revenue & Customs:
- The pattern of occupation condition – the total of all lettings that exceed 31 continuous days may not be more than 155 days of the year.
- The availability condition – the property must be available for letting as furnished holiday accommodation for at least 210 days in the year.
- The letting condition – the property must be let commercially as furnished holiday accommodation to the public for at least 105 days in the year, excluding any days when the property is let to friends or relatives at zero or reduced rates.
Where a landlord has more than one furnished holiday letting and one fails to meet the 105 day letting condition, it is possible to instead apply an average across all the furnished holiday lets that are owned.
To find out more about our tax and accountancy advice tailored to the needs of your landlord clients, please contact us.