Capital Allowances for Furnished Holiday Lets

Understand the potential tax savings that may be available to furnished holiday let owners.

Understanding Capital Allowances for furnished holiday lettings (FHL's):

A furnished holiday let (FHL) is a specific classification for rental properties in the UK, or in the European Economic Area (EEA) that meet certain criteria set by HMRC. This classification provides various tax benefits for holiday let owners and to qualify as a furnished holiday let, properties must meet specific requirements which are outlined below.

Qualifying criteria for Furnished Holiday Lets:

To claim Capital Allowances for furnished holiday lets, the following criteria must be met:

  • Location: The property must be located in the UK or in the European Economic Area (EEA).
  • Furnishing: The property must be furnished.
  • Commercial Intent: The property must be commercially let with the intention of making a profit.  
  • Availability: The property must be available for commercial letting as holiday accommodation to the public for at least 210 days in the relevant 12-monthperiod (the tax year).
  • Actual Letting: Out of those 210 days, the property must be let out for 105 days or more as holiday accommodation.
  • Long-Term Occupation: Long-term occupation (let for 31 days or more to a member of the public) must not exceed 155 days in the tax year. Any period of long-term letting cannot be counted towards the 105 days of commercial holiday letting required to qualify (CAA 2001).

It is imperative to note that once the property is used for private occupation or no longer continues to satisfy the letting conditions set out, it will no longer be classified as a furnished holiday let (FHL).

Claiming Capital Allowances on Furnished Holiday Lets:

For furnished holiday lets, property owners can claim capital allowances under the following conditions:

1.  Developments:

For both new builds and refurbishments, Capital Allowances are available. This can significantly reduce the taxable profits derived from these properties.

2.  Property acquisitions/purchases:

Capital Allowances are available when purchasing an existing FHL property, provided that Capital Allowances have not been claimed before or in circumstances where they have not been fully utilised

Information Required for Capital Allowances Claims:

To claim Capital Allowances the information the claimant will need to provide is as follows:

1.  Renovations or Fit-Outs:

  • Itemised project cost breakdown/cost plan of the works (including invoices).

2.  Property acquisition:

  • Property valuation/building survey reports
  • Sale and purchase agreements
  • Commercial property standard enquiries
  • Land registry documents

Recent Developments: Spring Budget 2024 Announcement:

In the Spring Budget of 2024, the UK Government announced the abolition of the FHL tax regime, effective from April 1, 2025. This change marks a significant shift for holiday let owners as FHL owners will experience their current tax advantages being replaced with transitional adjustments. Although the specifics of these changes have not yet been disclosed, we would encourage those considering claiming to assess eligibility now to ensure those who are eligible can claim before the discontinuation of the scheme.

For further information about claiming Capital Allowances for furnished holiday lets, please contact RCK Partners to further understand your tax position and entitlement.

Written by Thomas Fraser (Associate Consultant)

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