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Abbotsbury Dorset

Here at Dream Cottages we understand that tax isn’t the most exciting thing to talk about when setting up your holiday let and, for most people, it can be quite confusing. However, it’s important to know what tax implications are involved before you start your journey. We hope this holiday letting guide provides better understanding of tax information on your holiday let property.

There are a number of elements that can affect the taxes you pay on your property. We want to make sure you have all the information and support to make holiday letting work for you. We have over 350 property owners and our dedicated team are here to help every step of the way.

We want your holiday let business to be run as smooth as possible. You may be considering holiday letting a property you already own or looking to purchase a property to let out. With over 30 years of experience as the Dorset Experts, talk to us today to see how we can help guide you through the process.


What is a Furnished Holiday Let?

St Mary's Chapel Kitchen

A Furnished Holiday Let, also known as a FHL, is a certain type of rental property classification. Running a FHL comes with certain tax advantages however the property has to meet certain requirements.


Plan to Make a Profit

 

Your holiday let must be actively promoted and let commercially, with the intent of making a profit. It’s your ‘intent’ that counts and by marketing your property with Dream Cottages, proves just that!


Occupancy

There are three main conditions relating to the occupancy of your holiday let that must be met in order to qualify:

  1. Your property must be available for commercial holiday letting to guests for at least 210 days (30 weeks) per year.
  2. If your property is rented out by the same person for more than 31 days, there shouldn’t be more than 155 days (22 weeks) of this type of ‘long term’ occupation per year.
  3. Your property must be rented out as holiday accommodation to the public for at least 105 days (15 weeks) of the 210 days you have made it available. The time you or your family use the property doesn’t get counted towards this total.

But don’t worry, if you don’t qualify for the occupancy requirements, there are two options you can look at:

  • If you own more than one FHL, you can apply an ‘averaging election’ which is applying the letting conditions to the average rate of occupancy for all your properties.
  • There’s also a period of grace if your property doesn’t reach the required target one year, but has in previous years.

Furnishings

Although this may seem a little obvious, it is a requirement to have the property furnished. The rules do not specify to what extent, but if you aim to provide everything you would expect from a self-catering holiday cottage, then you’ll be on safe ground. Don’t worry too much about the expenses incurred on furniture, as the great news is that the costs of some of the furniture can be deducted as an allowable expense when looking at relief from capital gains tax. Allowable expenses can also include any costs associated with letting your property such as utility bills, cleaning materials and refuge collection. The cost of these will be deducted from your gross rental income before you work out your taxable profit.


Business Rates/Council Tax

If your holiday let is available for 140 days or more per year then you will be required to pay business rates. This is instead of council tax. The Valuations Office sets the rateable value and business rates are charged accordingly. This may not be bad news as you may be entitled to claim Small Business Rate Relief. Currently, if the rateable value of a property is less than £15,000, small business rate relief can be up to 100%.


VAT

If your revenue from your FHL property portfolio exceeds the VAT threshold, you will need to become VAT registered. However, to exceed the current VAT threshold you would need to let that property for over £1,500 per week for the entire year! Therefore, you’ll most likely need multiple FHL properties before VAT becomes something you would need to consider.


Selling

If you should come to sell your FHL property, you are able to claim certain Capital Gains Tax reliefs. These are unavailable to long-term rental properties and include Entrepreneur’s Relief, Roll-over Relief and Hold-over relief.