Furnished holiday lets
Special tax rules apply to a property that qualifies as a furnished holiday letting (FHL). To qualify, the property must be in the UK or European Economic Area (so a Spanish villa qualifies, but not a Florida apartment). It must also be furnished and, finally, it must meet three occupancy conditions:
1. The property must let commercially as furnished holiday accommodation to the public for at least 105 days in the year (normally taken as the tax year), with lets of more than 31 days generally excluded;
2. The property must be available for letting for at least 210 days in the year; and
3. Lettings that exceed 31 continuous days cannot total more than 155 days in a year.
If these requirements are met, a FHL offers a range of benefits, including:
1. Profits are treated as earnings for pension purposes;
2. Business rates will apply rather than council tax. However, small business rate relief means that there is nothing to pay if the property has a rateable value of no more than £12,000, with tapered relief applying up to £15,000 of rateable value;
3. Plant and machinery capital allowances can be claimed for furniture, equipment and fixtures;
4. If the letting activities amount to a business rather than simply an investment, class 2 national insurance contributions are payable, giving entitlement to contributory state benefits, including the single tier state pension; and
5. Various CGT reliefs, such as business asset rollover relief and entrepreneurs’ relief are available.
Rent-a-room relief
This relief was introduced in 1992 with the aim of stimulating the supply of low cost rented accommodation. It applies to owner occupiers and tenants who sublet all or part of their main home on a furnished basis, whether or not the letting amounts to a trade (e.g. food and cleaning is provided).
The relief exempts £7,500 a tax year of gross receipts from tax (£3,750 each for joint owners/tenants). If gross income exceeds £7,500, then the basic property regime described above will apply unless the taxpayer opts instead to pay tax on the excess gross income above the £7,500/£3,750 limit and ignores any claims for expenses.
In 2017 the Treasury published a consultation paper suggesting a radical revamp for rent-a-room relief after 25 years of existence. The paper’s unspoken targets were users of Airbnb and those Wimbledon residents who go on holiday during the Championships fortnight and let their home for a high, mostly (or completely) tax-free rent. A proposal to introduce a ‘shared occupancy test’ that would have effectively prevented a claim if an entire property was let reached draft legislation stage but was then abandoned, to the relief of many.
Allowances and tax – see next page
