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Wednesday, 3 October 2012

Tax on furnished holiday lettings

If you let out a furnished holiday home in the UK or the European Economic Area (EEA), you may be entitled to certain tax advantages. However, your property must meet some rules to qualify.

Rules for furnished holiday lettings for the 2011-12 tax year

To make sure your property qualifies as a furnished holiday letting, it must be:

  • in the UK or EEA
  • furnished
  • available for commercial letting to the public, as holiday accommodation, for at least 140 days a year (210 days for 2012-13)
  • commercially let as holiday accommodation for at least 70 days a year (105 days for 2012-13) - the rent must be charged at market rate and not at cheap rates to friends and family
  • a short term letting of no more than 31 days - find more guidance on furnished holiday lettings by using the link below

Tax advantages of furnished holiday lettings

The tax advantages if your property qualifies as a furnished holiday letting are:

  • you can claim capital allowances
  • you get the benefit of some favourable Capital Gains Tax rules when you sell or 'otherwise dispose' of the property

If your property doesn’t qualify

If your property doesn't qualify as a furnished holiday letting - for example you own a holiday villa outside of the EEA or you don't let it out for enough days - you'll be taxed under the residential property lettings rules.

Working out your taxable profit

Your profit on furnished holiday lettings is worked out in the same way as for other rental income. The only difference is you can claim 'capital allowances' rather than the 'wear and tear' allowance that other rental businesses receive.

Examples of expenses that qualify for capital allowances include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.

You can learn more about capital allowances and working out profits for furnished holiday lettings by following the links below.

If you make a loss

You can carry a loss forward and offset it against future letting profits. If you have a UK holiday home the losses can only reduce the future holiday let profits of the UK holiday home. If you have an EEA holiday let the loss can only reduce future EEA holiday let profits. You cannot use a holiday let loss to reduce your other taxable income. These rules about losses are new for 2011-12.

If you sell or 'otherwise dispose' of the property

You may be able to take advantage of Capital Gains Tax reliefs, such as 'Business Asset Roll-Over Relief'. For example, if you reinvest the sale proceeds within three years in certain other business assets, you may be able to defer payment of Capital Gains Tax until you dispose of those new assets. Follow the link below to 'Property and Capital Gains Tax' to find out more.

How to declare your income and expenses

You need to declare your rental income from furnished holiday lettings on the land and property pages of your Self Assessment tax return. Follow the link below to find out how to get one. You should use the same property pages of your tax return to declare income from furnished holiday lettings property in the UK and EEA.

What paperwork do you need to keep?

In order to be able to complete the tax return you need to keep:

  • a note of all the rent you receive and the dates you rent out the property
  • a record of your business expenses (see the Self Assessment land and property pages help notes for what counts as business expenses)
  • sales receipts, invoices and bank statements
  • all these records for six years after the tax year concerned

Provided by HM Revenue and Customs

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