If you let out a furnished holiday property in the UK on a commercial basis you may currently qualify for favourable tax treatment if all the qualifying tests are met.
Namely:
- The property must be available to the public for at least 140 days a year
- Actually let as a holiday let for at least 70 of those days
- The lets must be short-term (no more than 31 days) and
- There must be not more than 155 days of longer lets
Assuming the above tests can be met, a number of tax advantages arise because the landlord is treated as carrying out trading activity: the individual can use any losses arising to set against total income from other sources, thus reducing their income tax liability; roll-over relief and holdover relief to defer any capital gains arising. Entrepreneurs relief can be claimed to reduce capital gains tax liabilities, plus you also have entitlement to capital allowances on furniture and fixtures in the property.
From 2009 the furnished holiday lettings rules as applying to all furnished holiday accommodation in the European Economic Area (EEA). This means that individuals with property elsewhere in the EEA will qualify for the favourable tax reliefs to offset their UK tax bill as long as the letting meets the tests outlined above.
For tax returns to 5 April 2009 and 2010 any qualifying EEA property can be included as furnished holiday lettings.
Where an EEA property has been sold or transferred since 6 April 2003, roll-over relief and hold-over relief to reduce capital gains tax liabilities can be claimed until 31 January 2010.
Recent plans to repeal the favourable tax treatment of furnished holiday lettings were shelved and the Emergency Budget on 22 June 2010 confirmed that these rules will remain for the forseeable future.