Furnished holiday lettings

Properties for Holiday Lettings in the UK – special tax status

Furnished properties situated in the UK which are available for holiday lettings qualify for special tax status. The most important tax shelters  created include:

  • Availability of capital gains tax rollover relief, business asset taper relief and gifts of business asset relief. For example, if a trader sold his business and re-invested the sale proceeds into a holiday lettings property, then any gain on disposal could be rolled over against the CGT base cost of the holiday property. This valuable relief would not be available if the disposal proceeds of the business were re-invested into a normal investment property (e.g one which was let out on long tenancies).

Losses from holiday lettings can be relieved against all other income (including investment income) of the recipient. Losses arising from        letting non-holiday properties can only be setoff against future rental profits of the same type of rental.

Capital allowances are available as for traders.

Profits are treated as earned income for the purposes of relief for pension premiums paid. Normal lettings income do not so qualify.

In order to qualify as a holiday property a number of criteria must be met:

The property must be let furnished on a commercial basis with a view to realisation of profit;

The property must be available for letting for at least 140 days in aggregate in a year although these days do not have to be continuous;

The property must actually be let for 70 of those 140 days – again in aggregate during a year.

The property must not be occupied by the same person for more than 31 continuous days within a period of seven months.

In practice these conditions are not difficult to satisfy. Therefore the owners could easily structure their own occupation and enjoyment of the holiday property, say during the summer months and other periods, as long as they did not stay in the property for more than 31 days at a stretch. Provided the property was advertised for letting for at least 140 days (during which period the owners obviously could not occupy it), and provided it was actually let to tenants for short periods comprising at least 70 days, then the property would qualify. Because the 70 day and 140 day rules are considered in aggregate and not on a continuous basis, the entire letting arrangement can be structured in a flexible manner.