Furnished holiday let tax: a simple guide

What is a furnished holiday let?

Furnished holiday let is the term used to categorise holiday homes in the UK and across Europe.

Most holiday lets that are frequently available, booked throughout the year, and well furnished will be considered a furnished holiday let by HMRC.

Here’s an overview of the criteria your property will need to meet:

• you must intend to make a profit from your holiday let
• your property must be available for the public to rent for at least 210 days a year
• it must be rented out as commercial accommodation for at least 105 days a year
• each rental must be no longer than 31 days (if a stay is longer than 31 days, it doesn’t count towards the annual total)
• you can’t have more than 155 days of long-term stays (over 31 days) in a year
• renting to friends or relatives for free or at reduced rates doesn’t count towards the annual totals

There are no rules on the level of furnishing your property needs to have to be considered a furnished holiday let. However, it’s generally considered that it needs to be comfortable for guests and equipped for self-catering.

The more you spend on furnishing a holiday let, the higher rent you can charge. You can also offset the cost of upgrading your holiday let against your profits to reduce your tax bill (see more below).

Changes to furnished holiday let tax from April 2025

The current tax system for owners of furnished holiday lets is being scrapped from 6 April 2025.

Part of the Spring Budget 2024, holiday let landlords will no longer receive tax benefits on:

• mortgage interest
• capital allowances
• selling the property

The next steps will be a potential consultation or draft legislation to see the details of how the tax changes will work.

Holiday let tax – what do you need to pay?

If you rent out a holiday home, you’ll need to pay tax on the income it generates. The tax rules for holiday lets are slightly different to those for properties in the private rental sector.

The government has dedicated guidance for furnished holiday lets, called the Self Assessment helpsheet HS253.

Below is an overview of everything you need to know, from paying income tax to working out capital gains tax if you sell your property in the future.

Income tax for holiday homes

Most holiday let owners will need to complete a Self Assessment by 31 January each year. The income tax and National Insurance contributions you pay will be based on the income you make from letting your holiday home.

Read our complete guide to Self Assessment tax returns for landlords to find out how to register with HMRC, manage your finances, and pay your tax on time.

Paying tax on a furnished holiday let can be complex and this article is intended as a guide only. Please get advice from a professional tax expert if you’re not sure of anything.

Holiday let mortgage interest tax relief

As a holiday home owner, the way you pay tax is different to traditional landlords. You’ll be able to offset the interest of your holiday let mortgage against the profit you make each year. This could significantly reduce your tax bill.

Until recently, landlords of long-term lets were able claim buy-to-let mortgage interest tax relief. However, it was restricted by the government and replaced with a tax credit at the basic rate of income tax (20 per cent).

This tax benefit is one of the main reasons why investing in holiday lets has become increasingly popular in recent years.

Marvin/stock.adobe.com

Furnished holiday let capital allowances

Another way landlords can reduce their furnished holiday let tax bill is by claiming for ‘capital allowances’. This could be a necessary item of furniture that improves your property, such as:

• sofas
• beds
• wardrobes
• tables
• chairs

Fixtures and fittings claimed as capital allowances can be deducted from your profit when you calculate your tax bill.

Ownership split tax benefits

If you own your holiday home with a partner, you can allocate the profits for tax purposes however you like. For example if you pay more tax than your partner, you can declare the profits of your holiday let in their name to lower your tax bill.

Allowable expenses for holiday lets

Similar to capital allowances, you can offset allowable expenses against your revenue when paying tax on your holiday let.

Examples of allowable expenses include:

• letting agent fees
• utility bills
• maintenance costs
• cleaning costs

It’s important to note that you can only claim for costs incurred while the property is being used commercially, not when you’re staying there yourself or letting it to friends or family.

Pension benefits

The profits you earn from your holiday let can be used to make contributions towards your pension. If you choose to do this, your profits will be lower so you’ll pay less income tax. Read more: Where are the UK’s best holiday let areas?

Do you have to pay council tax on holiday lets?

If your property is classed as a furnished holiday let by HMRC, you won’t need to pay council tax. Instead, you’ll need to pay business rates for holiday lets.

Read our in-depth guide on business rates for more about how they work. You can find out your property’s ‘rateable value’ and an estimate of your annual bill by using the government’s business rates calculator.

What is holiday let VAT?

If your turnover is higher than the VAT threshold of £90,000 from 1 April 2024 (previously £85,000), you’ll need to become VAT-registered. This is unlikely to be necessary for most holiday let owners. However, if you own several properties or other businesses, your turnover is likely to be higher and you may need to register for VAT.

Capital gains tax for holiday lets

When you sell your property, you’ll need to pay capital gains tax. Owners of holiday lets can claim a range of capital gains tax benefits, including:

• Business Asset Disposal Relief – also known as Entrepreneurs’ Relief, your capital gains tax will be paid at 10 per cent instead of 18 per cent or 28 per cent
• Business Asset Rollover Relief – if you use the proceeds of your sale to buy a new holiday home, you may be able to delay paying capital gains tax
• Gift Hold-Over Relief – if you give away your property or sell it for less than it’s worth, you may not need to pay capital gains tax

Do you have any unanswered questions about furnished holiday let tax? Let us know in the comments below.

Useful guides for holiday home owners

• A property investor’s guide to holiday let mortgages
• The ultimate guide to buy-to-let property investment
• Energy efficiency guide for landlords – what is an EPC rating?
• What is holiday let insurance?