To qualify for the special tax breaks for holiday accommodation you have to let it for at least 105 days in the tax year. The good news is that you might still qualify if you miss this target by making a special election. In what circumstances can you use it?
Tax breaks
You might already know that if you own a residential property which you let out for short periods, i.e. less than 31 days at a time, there are several tax advantages over properties let for longer periods. For example, more generous tax relief for the cost of furniture and equipment and extra capital gains tax reliefs. HMRC calls these furnished holiday lettings (FHLs) but the special rules apply regardless of why the tenants rent them. To qualify as an FHL conditions must be met.
Conditions
To count as an FHL all the following must apply:
- the property must be let on a commercial basis
- it must be furnished sufficiently to allow tenants to use the property like a home
- during a tax year the total number of days where the property is let for periods of more than 30 days must not exceed 155; and
- it must be available to let for at least 210 days per tax year and actually let (for periods of 30 days or less) for 105 days.
Start-up trouble
When you first start letting a property the 105-day condition can be difficult to meet. Like any other type of business it can take time to get an FHL going. The trouble is that in the meantime you might miss out on the special tax breaks.
Tip. The rules allow some leeway for start-up FHLs. Instead of the 155, 210 and 105 day-limits applying for the tax year they apply to the first twelve months of letting.
Example. Bill and Hilary own a second home which they first let as holiday accommodation from 1 August 2021. Their first booking was for seven days from 18 August. They made short-term lets for another 60 days between the first let and the end of the tax year; a total of 67 days for 2021/22. This doesn’t meet the 105-day condition. However, they can take into account lets up to 17 August 2022, i.e. the first twelve months. They let the property for 60 days in that period making the total let days in the first twelve months 127 – over the qualifying threshold.
Note. The periods of letting between 6 April and 17 August 2022 also count towards the other limits for 2021/22.
Tip. By establishing the first tax year as an FHL you can use this to extend the qualifying period for the next two tax years even if by themselves the 105-day conditions aren’t met. This is achieved by making a special claim known as a period of grace election.
Getting a good start
As meeting the FHL letting condition for the first twelve months is important, to start with it might be worth registering your property with a letting agency or holiday company to increase your chances of obtaining FHL status.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.