Owning and renting property on a buy-to-let basis is not considered a business by HMRC. Instead it is treated as an investment activity and therefore the rules are more stringent on what you can and can’t claim.
Furnishing Holiday Lets (FHL’S) are considered a business, and this makes them a tax efficient way to invest in your business. FHL’s can be a lot more involved than a buy-to-let but there are tax savings.
To qualify as a FHL your property must be available for letting as furnished holiday accommodation for at least 210 days in the year. This does not include any time that you, the owner, are staying at the property and the total of your longer lettings (31 day or more) cannot exceed 155 days in the year. The property must be furnished to a standard that allows everyday occupancy.
If the conditions are met your Airbnb can be considered a FHL.
FHL Tax Savings
There is a wider scope of what you can claim in a FHL, things such as
- Professional fees including accounting fees.
- Advertising – any costs incurred in advertising your holiday let can be included, such as advertising with Google or Facebook or website costs.
- Insurance – the costs of insuring your holiday let can be claimed back against tax.
- Loan interest – unlike buy-to-let, you can claim all of your mortgage interest against your tax.
- Energy bills – any fuel, gas or electricity relating to the holiday let can be claimed back against tax.
- General repair – any property including a holiday let will need a whole raft of running repairs from redecoration to new roofs. Nearly all general repair costs can be claimed back against tax.
- Cleaning costs – most holiday let owners will not want the responsibility of having to clean and launder the holiday let at every change over. These costs can all be set against the taxable income of the holiday lettings business.
- Subscription packages – if you are subscribing to any subscription service that includes Wi-Fi or TV services for your paying guests, then this is all a legitimate cost to your holiday let and can therefore be offset against your profits.
- Travel expenses – any travel expenses in connection with your FHL can be claimed at up to 45p a mile and can be included without a taxable benefit being incurred. You will need to keep a mileage log.
- Home office
- Capital Allowances on the cost of furnishing and fixtures can be claimed.
One of the biggest benefits of a FHL is Capital Gains Tax. There are reliefs available that are only normally reserved for trading businesses:
- Entrepreneurs’ relief – pay CGT at 10%
- Hold Over Relief – a relief for gifting FHL assets for example to a younger generation.
- Roll Over Relief – defer CGT when disposing of an FHL if you reinvest in qualifying assets.
As a business property your FHL must pay business rates, but many qualify for Small Business rate relief.
Income generated from an FHL property is classed as ‘relevant earnings’ – this means you can make tax-advantaged pension contributions.
The upside potential for a FHL or Airbnb is that you can potentially have higher revenue. On average short-term rentals can generate more income than long-term rental, but where there is reward there is often risk. Long-term rentals offer more stability and less risk, but potentially lower rewards.
How we can help
We are available to help you understand if your property qualifies as an FHL and to help you understand your tax position in relation to this. We can also make sure you meet all of your tax needs. Call us on 01634 406 166 or email