Properties that qualify as furnished holiday lettings (FHLs) are subject to special tax rules for rental income.
To qualify as a furnished holiday let (FHL) for tax purposes, the property must be:
- Available for commercial letting for 210 days in a year;
- Actually let commercially for at least 105 days;
- Not let for periods of longer term occupation (more than 31 consecutive days to the same person) for more than a total of 155 days in a year.
If it does not meet these criteria, the property will be treated as furnished property and therefore subject to different tax treatment. Generally, properties are considered individually, but for “actually let” days it is permissible to average across properties, so that a more successful let can compensate for a less successful one.
There have been a few updates to the tax rules for 2020-21, including to the qualifying unforeseen circumstances for a period of grace election.
Period of grace election
If, despite their best efforts, the owner has been unable to let the property for the required number of days, they may be able to make a period of grace election. To make an election, the owner must be able to show that there was a genuine intention to let the property in the year. For example, the property had been advertised to the same or to a greater level than in previous years or lettings have been cancelled due to unforeseen circumstances.
Coronavirus restrictions may make it difficult to meet conditions for furnished holiday letting tax treatment.
HMRC have confirmed that for the 2020-21 tax year, unforeseen circumstances for the purpose of a period of grace election include where the letting condition is not met due to Coronavirus measures such as enforced closure due to lockdown or a travel ban.
If the property does not reach the threshold by the fourth year, after two consecutive periods of grace elections, it will no longer qualify as a furnished holiday letting.
Further information and tax considerations for Furnished Holiday Lettings can be found by downloading our factsheet below.