The number of householders and investors involved in the UK’s vacation rental and short-term letting industries has significantly increased in recent years. The primary factor is that these real estate investments can generate substantial revenue. But later, other advantages like staying there for a few weeks each year and tax advantages make it even more enticing. Are you an investor looking to step into Furnished Holiday Let and confused about Capital Allowance? Then, you need to keep reading, as this blog will clear all your concepts. Let’s dive into the blog:
What is Furnished Holiday LET?
A furnished holiday let (FHL) is a temporary investment home. Furnished vacation rentals are taxable as a trading enterprise. The best part is that there are tax benefits known as capital allowances available for furnished vacation rentals but not for buy-to-lets. Remember that the property must meet specific tax requirements to qualify as a furnished holiday home to receive the concessions. It would be best if you kept in mind that simply being able to rent it out for vacation purposes is insufficient.
Conditions To Qualify a Property As a Furnished Holiday Let
If you are the owner of the property and your property has the below characteristics, then your property can be qualified as FHL:
- Your property must be located in the UK or one of the nations that make up the European Economic Area (EEA), which comprises all European Union members.
- Your property needs to be completed. Even though it can seem too obvious, this is one of the prerequisites.
- The home must be rented out for profit in a commercial setting. It is not necessary to gain money; what matters is your intention.
- It must be available for rental for 210 days or more throughout the tax year,
- It must be rented out for 105 days during that time.
- Short-term renting out is required, defined as fewer than 31 days at a time. If you’re renting it out for at least 31 days, the total number of days can be at most 155 in a calendar year.
Does your property fulfill the above requirements? If not, then don’t worry. Two ways can still help your property to qualify as Furnished Holiday Let:
First, you can go with” average election.” By using the averaging election option if you own several FHL properties. By choosing this option, you may combine your vacation rentals and use the average occupancy rate rather than the incompatible individual data.
The second choice is called a “grace election,” which offers you a one-year exemption if you cannot comply with the requirements if you have previously met the minimal goals. You can decide from the above points; which pathway you can choose.
Conditions On Which A Property Is Not Qualified As A Furnished Holiday Let
After the conditions which show the eligibility of a property to be authorized as a Furnished Holiday Let. There are some points which are needed to be considered. If a property satisfies one of the following requirements, it is no longer an FHL:
- The house has been sold.
- The property is being occupied privately.
- Election averaging and grace period elections are two conditions that have yet to be satisfied.
You Can Claim Capital Allowances
Your furnished holiday let can be eligible for capital allowances. This is a tax credit in place of capital asset loss, which is unsuitable for tax purposes. Many owners of holiday homes are still determining if they have the right to file a claim. Furnished vacation rental owners may need to be made aware that they can claim capital allowances against several capital assets in the property, such as water heaters, power components, bathroom accessories, appliances, and many others.
Items On Which Capital Allowance Can Be Claimed
As mentioned above, you can claim capital allowance on several items. Below given list will help you understand that on which things you can claim capital allowance on furnished holiday let qualified property under the “plant and machinery” FHL capital allowance section:
- Sofa, table and chairs, beds, wardrobes, and drawers
- Toiletries and plumbing
- drapes, bedspreads, and pillows
- kitchen cabinets
- Freestanding refrigerator and freezer for white goods
- Television, microwave, kettle, and other appliances
- Heating \Carpets
- Repair and replacement work on buildings, including fixtures for the kitchen and bathroom, windows, doors, and boilers
To get you a clear understanding of Furnished Holiday let and Capital Allowance, below are listed some Faqs:
- Does furnished holiday let require the payment of council tax?
You will not be responsible for paying council tax if HMRC classifies your home as a furnished holiday home.
2. Can I claim Capital Gain Tax on Furnished Holiday Let?
There are various ways of how to avoid Capital Gains Tax on buy-to-let property. You can pay capital gains tax on the sale of your property. Holiday rental owners are eligible for several capital gains tax benefits, including Gift Hold Over Relief, Business Asset Roll-Over Relief, etc.
3. Who is eligible to get capital allowances?
You can be eligible for capital allowances on furnished holiday let if you rent out your property commercially for short-term stays and the lodging is provided. The property will also need to meet several other requirements, including how many days a year it is open to the public for rentals (currently 210 days annually) and the pattern and rate of occupancy. Also, the property must be primarily used for short-term vacation stays (now 105 days annually) to qualify.
If you are traveling to the UK this year in an FHL or know someone who owns one. Ask if they have thought about capital allowances on their property. An FHL may be eligible for significant tax savings with anticipated capital allowances. With the help of a professional, you can save yourself from a lot of hustles. Contact a tax accountant in Bolton to relieve the burden from your shoulders.