This document discusses the conditions to qualify as FHL, advantages of being a FHL, under-used holiday accommodation elections, treatment of losses, implications of joints held FHLs and VAT on provision of holiday accommodation.
Whether or not a property qualifies as a furnished holiday let (FHL) can make an important difference to the taxation implications. In particular, the letting of furnished holiday accommodation can benefit from a more beneficial regime in some respects. The main advantage of FHLs is that they are treated like a trade for cer-tain purposes even though they are not actually taxed as trades so there is no Class 4 national insurance charge.
Since 22 April 2009, the favourable tax treatment of UK FHLs has been extended to similarly qualifying properties within the European Economic Area (EEA). This treatment was non-statutory but kept the UK in line with EU law. This treatment was legislated with effect from 6 April 2011. The EEA comprises the member states of the EU plus Iceland, Liechtenstein and Norway.
For income tax purposes, the taxpayer must categorise rental profits from land and buildings as either:
- a UK property business
- an overseas property business, see the Overseas property businesses guidance note
- a UK FHL business
- an EEA FHL business
England, Wales, Scotland and Northern Ireland make up the countries of the UK. The Isle of Man and the Channel Islands are treated as overseas for the purposes of the legislation.
The calculation of the profits and losses is the same no matter the category of property business, but the profits and losses must be kept separate due to the rules on set-off of losses (see below).
Therefore, from 2017/18 onwards, there are two possible bases of assessment that can be used to calculate UK FHL business and EEA FHL business profits and losses:
- the simplified cash basis, which is the default basis for calculating profits and losses, unless certain conditions are met, see the Simplified cash basis for unincorporated property busi-nesses guidance note
- the accruals basis, see the Property income - accruals basis and Allowable property expenses guidance notes
Prior to 2017/18, profits and losses were calculated on the accruals basis, unless the gross rental profits did not exceed £15,000, in which case a non-statutory cash basis could be used. If used, the cash basis need-ed to be used consistently, and the overall result needed to be reasonable and not differ substantially from the amount produced using the accruals basis. PIM1101
This guidance note discusses the conditions that must be met for accommodation to be classed as a FHL and the favourable tax treatment for FHLs owned by individuals.