So you took the plunge and ventured in to the furnished holiday let market and for most owners it has been an extremely profitable and enjoyable ride. The rise in FHL’s within inner cities, rural belts and coastal towns is currently on an upward trend with no signs of slowing. New investment into the short term holiday let market is mainly being fueled from buy to let landlords due to recent shifts in tax treatment and stamp duty which effectively leaves highly leveraged landlords in a negative cash flow position.
However, changing strategy to the FHL model turns the above on its head with the availability of a huge tax relief that is restricted for buy to let landlords.
This tax relief is called capital allowances (as you may already know) and can turn up to 45% of the property purchase price into a source of tax free income.
To qualify as a FHL your property must be in the UK or in the European Economic Area (EEA) - the EEA includes Iceland, Liechtenstein and Norway. It must also be furnished and let on a commercial basis intent on making a profit and meet the following;
1.The Pattern of Occupation
If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be an FHL for that year.
2.The Availability Condition
Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
3.The Letting Condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.
If you did not meet the conditions, Fear not and read on.....
In most cases FHL owners will usually hit the first two conditions with ease but some fall short on the letting condition. But fear not, you may still be able to qualify your property as a FHL and receive the benefits of capital allowances by way of an averaging election or period of grace election.
If you let more than one property as a FHL, and one or more of these properties does not meet the letting condition of 105 days, you can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. This is called an averaging election.