With recent challenges in the Buy to Let market, property owners are looking at alternatives including Furnished Holiday Lettings.
Many consider holiday letting as being in a designated holiday region. However, the success of Airbnb has shown that short term accommodation in major centres is very much in demand.
What are the attractions?
- Full deduction for interest paid
- 100% management by third party is normally an acceptable tax deduction
- Can sell existing assets (once brought into use as FHL) and roll the gain into another property which may be more suitable for holiday lettings
- As a qualifying business – the value of the business, with planning, may well become exempt from IHT
- Entrepreneurial Relief should apply on closure of a FHL business resulting in a 10% tax charge on the gain arising on disposal of the properties (as against 28%)
- Capital allowances are available for fitting out
- The earnings are pensionable
As always there are specific conditions and regulations that need to be met but, with a good agent, these are manageable. The properties must be:
- Available for let for at least 210 days in a tax year
- Let for 105 days in a tax year on a commercial basis (no friends!)
- No continuous lets of more than 31 days to one individual
You also need to ensure that private use is pro rata for the deduction of expenses against income and the option to tax etc must be considered. With some adaption the strategy is potentially workable and if nothing else may reduce the tax payable on disposal. To find out more or to discuss your position please contact Tom Penman, Tax Partner.