Furnished holiday lettings

The properties within a furnished holiday lettings (FHL) business must be let on a commercial basis with a view to making a profit.

Firstly, the properties must be let furnished, and above all satisfy these conditions:

  1. The property must be available for commercial letting as holiday accommodation for at least 210 days a year;
  2. It must be actually let as holiday accommodation for at least 105 days a year;
  3. It must not normally be let for a continuous period of more than 31 days to the same tenant in seven months of the year. Those seven months include any months in which it is actually let as holiday accommodation.
Grace period

These apparently simple conditions are complicated by the introduction of the grace period from April 2012. If a FHL property has not actually been let for the required 105 days, but it did meet this condition in the previous year, the owner can elect for a period of grace to apply. The property is then treated as meeting the letting condition for that tax year. The election can be made for up to two consecutive years, but if the property is not actually let for the required days in the fourth year, it ceases to qualify as FHL.

This period of grace election can only apply where there is a genuine intention to let the property; and the property must be available for letting for the full 210 days per year. The election must be made by the first anniversary of 31 January following the end of the tax year it applies to.


Where the taxpayer owns more than one property that is let as FHL, you may average the days let across the properties when determining if the number of days let is met. This averaging exercise can allow all properties to qualify as FHL where some properties easily meet the letting requirement and others do not. Properties in the UK cannot be averaged with properties which are located outside of the UK. This averaging exercise should be performed before the period of grace election is considered for each property.


Losses from a FHL business cannot be set against the taxpayer’s other income, not even against other property income. The only way a FHL loss can be relieved is to carry it forward and set it against profits from the same FHL business. Where the property ceases to qualify as FHL for a period of less than three years, the losses can be carried forward over this gap period, if it can be shown that the same FHL business is carried on before and after the gap period. Where the taxpayer provides a significant amount of services alongside the provision of the FHL property, such as meals or entertainments, the whole business may qualify as a trade in a similar fashion to a hotel. If the FHL business can be shown to be a trade, any losses will be available for sideways loss relief.

Advantages of FHL

Commercial furnished holiday lettings are not actually a trade. The activity is deemed to be a trade, in order to qualify for the following tax reliefs:

  • Capital allowances may be claimed for items used within the FHL properties, as well as for equipment used externally to the properties and in running the FHL business;
  • The profits are treated as earnings for pension purposes;
  • The profits are not subject to class 4 National Insurance contributions.

Capital gains made on the disposal of a FHL property may:

  • Attract Entrepreneurs’ Relief;
  • Be rolled-over into the base cost of another business asset if acquired by the same taxpayer within the specified period; or
  • Be held-over if the property is gifted or transferred at less than market value;
  • In addition, the FHL business may qualify for Business Property Relief (BPR) from inheritance tax (IHT).
tax facts furnished holiday let
Disadvantages of FHL

The disadvantages of letting as FHL as opposed to on standard six-month residential lets are:

  • The turnover of tenants is much higher;
  • Advertising and cleaning costs are higher;
  • The relief for losses is more restrictive than for normal lettings;
  • The landlord may have to register for VAT.

All holiday accommodation is standard-rated for VAT purposes, whether or not it qualifies for FHL. This means the landlord may have to register for VAT, if the total of rental income received from the FHL properties plus any other VATable supplies made by the landlord, exceed the compulsory registration limit (£83,000 from 1 April 2016). For landlords already VAT-registered for another business, standard VAT must be applied to all FHL fees.

Private use

Where a FHL property is used by the landlord’s family for no charge, any capital allowances claimed for that tax year must be restricted for that private use on a just and reasonable basis. This restriction should also logically be applied to the annual expenses for the property such as local property taxes, power and water charges.

Inheritance tax

Although a FHL business is deemed to be a trade, it will not necessarily qualify for BPR for IHT purposes. To qualify for BPR the FHL business owner needs to provide a level of service over and above what would be expected from a landlord of residential property. This may be achieved in the case of a caravan park or seasonal short lets where catering, entertainment and other services are also provided. Where the accommodation is merely furnished and no other services are provided to the tenants, HMRC concludes; “in most cases the level of services provided will not be sufficient to weigh the balance away from investment.”

Please note that this Tax facts page is for general information purposes only. You should seek professional advice before action is either taken or refrained from as a result of information contained herein. Content last updated: 29/6/18.

For more information

Please contact our Tax advisory team on:

01483 416232