Research and reports
Landlords who rent out holiday lets can make impressive returns with the right strategy.
But how do your tax responsibilities change when you let a holiday home?
Furnished holiday let is the term used to categorise holiday homes in the UK and across Europe.
Most holiday lets that are frequently available, booked throughout the year, and well furnished will be considered a furnished holiday let by HMRC.
Here’s an overview of the criteria your property will need to meet:
There are no rules on the level of furnishing your property needs to have to be considered a furnished holiday let. However, it’s generally considered that it needs to be comfortable for guests and equipped for self-catering.
The more you spend on furnishing a holiday let, the higher rent you can charge. You can also offset the cost of upgrading your holiday let against your profits to reduce your tax bill (see more below).
If you rent out a holiday home, you’ll need to pay tax on the income it generates. The tax rules for holiday lets are slightly different to those for properties in the private rental sector.
The government has dedicated guidance for furnished holiday lets, called the Self Assessment helpsheet HS253.
Below is an overview of everything you need to know, from paying income tax to working out capital gains tax if you sell your property in the future.
Most holiday let owners will need to complete a Self Assessment by 31 January each year. The income tax and National Insurance contributions you pay will be based on the income you make from letting your holiday home.
Read our complete guide to Self Assessment tax returns for landlords to find out how to register with HMRC, manage your finances, and pay your tax on time.
Paying tax on a furnished holiday let can be complex and this article is intended as a guide only. Please get advice from a professional tax expert if you’re not sure of anything.
As a holiday home owner, the way you pay tax is different to traditional landlords. You’ll be able to offset the interest of your holiday let mortgage against the profit you make each year. This could significantly reduce your tax bill.
Until recently, landlords of long-term lets were able claim buy-to-let mortgage interest tax relief. However, it was restricted by the government and replaced with a tax credit at the basic rate of income tax (20 per cent).
This tax benefit is one of the main reasons why investing in holiday lets has become increasingly popular in recent years.
Another way landlords can reduce their furnished holiday let tax bill is by claiming for ‘capital allowances’. This could be a necessary item of furniture that improves your property, such as:
Fixtures and fittings claimed as capital allowances can be deducted from your profit when you calculate your tax bill.
If you own your holiday home with a partner, you can allocate the profits for tax purposes however you like. For example if you pay more tax than your partner, you can declare the profits of your holiday let in their name to lower your tax bill.
Similar to capital allowances, you can offset allowable expenses against your revenue when paying tax on your holiday let.
Examples of allowable expenses include:
It’s important to note that you can only claim for costs incurred while the property is being used commercially, not when you’re staying there yourself or letting it to friends or family.
The profits you earn from your holiday let can be used to make contributions towards your pension. If you choose to do this, your profits will be lower so you’ll pay less income tax. <br />Read more: Where are the UK’s best holiday let areas?
If your property is classed as a furnished holiday let by HMRC, you won’t need to pay council tax. Instead, you'll need to pay business rates for holiday lets.
Read our in-depth guide on business rates for more about how they work. You can find out your property’s ‘rateable value’ and an estimate of your annual bill by using the government’s business rates calculator.
If your turnover is higher than the VAT threshold of £85,000, you’ll need to become VAT-registered. This is unlikely to be necessary for most holiday let owners. However, if you own several properties or other businesses, your turnover is likely to be higher and you may need to register for VAT.
When you sell your property, you’ll need to pay capital gains tax. Owners of holiday lets can claim a range of capital gains tax benefits, including:
Do you have any unanswered questions about furnished holiday let tax? Let us know in the comments below.
Conor Shilling is a Copywriter at Simply Business with over two years’ experience in the insurance industry. A trained journalist, Conor has worked as a professional writer for 10 years. His previous experience includes writing for several leading online property trade publications. Conor specialises in the buy-to-let market, landlords, and small business finance.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
6th Floor99 Gresham StreetLondonEC2V 7NG
Sol House29 St Katherine's StreetNorthamptonNN1 2QZ
© Copyright 2023 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.