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Tax on furnished holiday lettings

If you let out a furnished holiday home in the UK or elsewhere 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'.

Current rules for furnished holiday lettings

To make sure your property qualifies as a furnished holiday letting, it must be:

  • in the UK or EEA (see more in the section 'If the property is in the European Economic Area')
  • 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)
  • a short term letting of no more than 31 days - see more below

Lets to the same person

You can let to the same person more than once as long as each let is less than 31 days. All of these lets together can total more than 31 days and still count as furnished holiday lettings.

Lets for periods longer than 31 days

You can let the property out for periods longer than 31 days in one stretch but none of the days will count towards your qualification. This is known as 'longer term occupation'. However if the total of all or any 'longer term occupation' lets is more than 155 days in the tax year, your property will no longer qualify as a furnished holiday letting.

If your property doesn’t qualify

If your property doesn't qualify as a furnished holiday letting, you will be taxed under the residential property lettings rules.

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 by following the links below.

Tax advantages of furnished holiday lettings

There may be a tax advantage if your property qualifies as a furnished holiday letting and either of the following applies:

  • you make a loss on your rental income
  • you sell or 'otherwise dispose' of 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 by following the link below.

If you sell or 'otherwise dispose' of 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 the sale proceeds within three years in certain other business assets, 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 or visit the HMRC website.

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, follow the link below to find out how to get one. You should also use the same property pages of your tax return to declare income from furnished holiday lettings property in the EEA.

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 follow the link below.

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 help line on 0845 9000 444 (open 8.00 am to 8.00 pm seven days per week).

Changes to the furnished holiday letting rules

The 2009 Budget announced an intention to withdraw these rules from 6 April 2010 for Income Tax and Capital Gains Tax. For Corporation Tax the date was 1 April 2010.

The June 2010 Emergency Budget announced that the change won't take place now and the rules will continue to apply for the 2010-11 tax year.

More useful links

See also...

 

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