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Tax and Holiday Lets

Investing in a holiday let can be a very tax efficient way of investing in property

For tax purposes, running a holiday let business is comparable to a trade and therefore benefits from more favourable tax treatments than a residential let (which is considered an investment). For example the deduction of mortgage interest is fully allowable against a Furnished Holiday Let (FHL) and Capital Allowances are also available.

Below, we will discuss some of the tax benefits of having a property with Furnished Holiday Let status;

Mortgage Interest Rate Relief

Unlike buy-to-let properties, the full  interest rate charged on your holiday let mortgage can be deducted from profits in order to lower your tax liability.

This is one of the biggest benefits of investing in a holiday let instead of a residential let, which does not benefit from Mortgage Interest Rate Relief.

Furnished Holiday Let tax deductible expenses

Generally, if your property is run as a FHL, the running costs and expenses associated with your business can be deducted from your income – which means that your tax liability will be lower. However, it’s important to remember that any allowable expenses must have been incurred wholly for the purposes of running your holiday let business.

This includes, but is not limited to;

• Heating and lighting
• Utility bills
• Advertising and letting agency fees
• Maintenance and repairs
• Gardening
• Housekeeping and laundry
• Holiday let insurance
• Professional fees

Capital Allowances

You may also claim Capital Allowances on items used to increase the potential income of your holiday let.

This includes, but is not limited to;

• Furniture
• Equipment
• Embedded fixtures such as bathrooms, kitchens, carpets and water, electrical or heating systems

Small Business Rate Relief

Small Business Rate relief is available on business properties (including holiday lets) with a rateable value of less than £15,000. However, you will usually only benefit if you only have one business property. Furthermore, from April 2023, you will only be eligible for business rates on a holiday let if it is let commercially for at least 70 days per annum.

If you have more than one holiday let, you may still be able to benefit from Small Business Rate Relief on your main property, if certain conditions are met. Please contact our expert team for further advice.

Capital Gains Tax Relief

Capital Gains Tax is the tax levied from profit on the sale of property or an investment.

If you come to sell your FHL, you may be able to benefit from Capital Gains Tax relief in the following areas;

• Business Asset Rollover Relief: if you sell your FHL and use all or part of your proceeds to buy a new holiday home or to invest in other qualifying assets, you may be able to delay paying Capital Gains Tax until you sell the new asset.
• Business Asset Disposal Relief (previously Entrepreneurs’ Relief): this allows you to reduce the Capital Gains Tax owed when you sell a ‘business asset’ like a FHL.

We hope that you’ve found this article helpful. Ultimately, efficient tax planning is the best way for any business to minimise their tax liability.

For further advice regarding tax and your holiday let, please get in touch with our specialist team, we would be happy to help.

Find out more about our specialist accountancy services for property and landlords.

Here are some more resources that you might find useful;

VAT on Holiday Lets

Tax Relief for Landlords