top of page

Furnished Holiday Lets

Furnished Holiday Lets

        Furnished Holiday Lets

  • Imagine a stylish apartment in the city, a quaint beach home, or a quiet cottage by the lake, fully furnished for a comfortable stay. These are excellent illustrations of furnished vacation rentals (FHLs). But having a vacation home that you occasionally rent out is ineligible. Below is a summary of the salient characteristics:

  • Furnished: The property must be equipped with furniture and amenities suitable for a typical holiday stay. This includes essential furniture like beds, seating, and tables, along with basic kitchen equipment and utensils.

  • Commercially Let: You must have the intention of running the property as a business venture with the goal of profiting from rentals. Renting to family and friends at discounted rates or for extended periods might jeopardize the FHL status.

Table of content





Qualifying Criteria for Furnished Holiday Lets (FHL)


  • To qualify as an FHL and unlock specific tax benefits (although these are changing as of April 2025), your property needs to meet two main criteria: location and letting conditions.




Geographic Location: 

  • The property must be situated in the UK or

  • the European Economic Area (EEA). The EEA includes Iceland, Liechtenstein, and Norway.


Letting Conditions:

  • A property must fulfill these requirements in order to be classified as a furnished holiday letting and to be eligible for the related tax advantages.






Solutions for Failing to Meet FHL Criteria

  • The following two options are available to you if, in spite of your best efforts, you were not able to fulfill the FHL Conditions and the reason for the failure was not within your control:



    Period of Grace Election

  • You can still be eligible for FHL status even if you haven't fulfilled the Letting criteria of 105 days in a given tax year by using the Period of Grace Election.


  • Only in cases where there is a genuine intention to rent the property and it satisfies the requirements for both availability and pattern of occupation may the election be used.


  • If your property qualifies as a FHL in one tax year, you can choose to treat it as continuing to qualify for up to two years later.


  • It is important to remember that the grace election needs to be made during the first tax year in which the condition of letting is not fulfilled. By January 31st of the year after the tax year in which the failure occurs, this election must be made.


  • Furthermore, after two years of grace, it will no longer be considered a furnished holiday let if you don't complete the requirements by the fourth year.




       Average Election

  • You may utilize an averaging election if you have several residences rented out for furnished vacations and some of them don't fulfill the 105-day rental requirement.


  • Rather than examining each property separately, you may use this choice to apply the requirement to the average rate of occupancy for all the properties you rent as FHLS.


  • Additionally, every property needs to fulfill the requirements for both availability and pattern of occupation. The deadline for making this choice is January 31st of the year after the tax year in which the failure occurs.



    For Example:


  • Emma lets 4 UK holiday cottages in 2021 to 2022 for the following number of days:



Number of      days

Cottage 1

   120 days

Cottage 2

   125 days

Cottage 3

   112 days

Cottage 4

    64 days


   421 days


  • If Emma uses averaging, all 4 cottages will meet the letting condition (421 days divided by 4 = 105). Without averaging, cottage 4 would not qualify.


  • You can only average across properties in a single FHL business.


  • You cannot mix UK and EEA FHL properties together.




Benefits of Qualifying as a FHL


Capital Gains Tax Reliefs:

  • Certain capital gains tax reliefs that aren't available for regular lettings could apply to you if you own properties that meet the requirements for furnished vacation rentals.



Business Asset Disposal Relief (BADR):

  • If you own FHL property, you can benefit from a capital gains tax relief called Business Asset Disposal Relief.


  • This relief reduces the capital gains tax rate to 10% when selling an FHL property, as opposed to the standard rate of 24% that applies to residential landlords in the higher tax bracket.


  • Claiming this relief can result in substantial tax savings, with a reduction of up to 18% in taxes payable on the capital gains from the sale of your FHL property.



Rollover Relief:

  • When you sell your FHL property, you can postpone paying Capital Gains Tax (CGT) if you own the property.


  • This relief, referred to as Rollover Relief, is applicable if the money from the sale is used to buy another property.


  • In other words, you can postpone paying the tax until after you sell the substitute property. This means that there will be no capital gains tax due to you at this time.



Gift Relief:

  • You could be eligible to get Gift Relief, commonly known as Holdover Relief, if you choose to donate your FHL property to a charity or sell it for less than market value.


  • With this relief, you can postpone paying Capital Gains Tax (CGT). The recipient of the property must pay CGT when they sell it in the future.


  • You may use this relief to postpone paying taxes and maybe lower your total tax liability.



No Restriction on Interest Relief

  • Furnished holiday lettings are exempt from Section 24's restrictions on interest relief.


  • You can claim the whole amount of interest paid as an allowance expenditure and deduct it from the gross rental earnings if you purchased a furnished vacation rental property using a loan.


  • The Government announced plans to limit the tax relief provided to landlords for interest and other financing charges in the 2015 Summer Budget (Section 24 of Finance Act 2015).


Capital Allowances

  • The ability to get capital allowances is one of the main advantages of owning an FHL property.


  • A sort of tax break known as capital allowances allows business owners to deduct the cost of certain assets, such as furniture, fixtures, and equipment, from their taxable income.


  • You can lessen the taxable earnings and, in turn, your tax burden by claiming the value of the capital allowances.



Pension Contributions

  • Similar to other kinds of self-employed income, the revenue from furnished vacation rentals is classified as "Earned Income."


  • As a result, you can make a greater tax-free contribution to your pension scheme, as the amount you can contribute is dependent on their earnings.

  • This is advantageous as profits from normal letting activities are not treated as earnings for pension purposes.





Challenges of FHL



You have to register for VAT when your vacation let revenue reaches a particular level. The threshold is now £90,000 This affects your earnings and pricing strategy because the cost of staying at your rental will increase by 20%.

Wear and tear

Compared to residential rentals, holiday rentals often have a larger number of residents, which means that the furnishings and appliances may see greater wear and tear and require replacement more frequently.


Future of furnished holiday lets (FHL)

The big news for Furnished Holiday Lets (FHLs) is that the government is abolishing the entire regime from April 6th, 2025. This means the favourable tax treatments that FHLs currently enjoy will be going away.


Here's a breakdown of the key changes:


Tax on Rental Income

Currently, mortgage interest on FHLs can be deducted from rental income. From 2025, only a 20% tax credit will be available, which is a significant reduction in relief for higher rate taxpayers.


Capital Gains Tax

Selling an FHL currently benefits from Business Asset Disposal Relief (BADR), offering a 10% capital gains tax rate. This benefit is being removed in 2025.

Pension Contributions

 FHL income currently qualifies for tax-free pension contributions. From 2025, it will no longer do so, impacting holiday let owners' retirement planning options.


There's also an "anti-forestalling" rule in place since March 6th, 2024 to prevent people from rushing into FHL purchases just to benefit from the old tax system before it disappears.


FHLs offer property owners a special chance to enjoy certain tax benefits and potentially earn profit from short-term rentals.

To be eligible, these accommodations, such as a chic urban flat, a charming seaside retreat, or a peaceful lakeside cabin, must adhere to strict standards in terms of furniture, placement, and rental terms.

Even with new tax benefit changes in April 2025, property owners can still take advantage of current benefits with careful planning and rule comprehension.

The significance of staying updated and adjusting strategies for sustained profitability and compliance is underscored by future changes.

Maximize your property's potential—contact us now for expert guidance and secure your FHL benefits before the 2025 changes!

Are you keen on optimizing the potential of your property as a Furnished Holiday Let? Get in touch now for professional advice on understanding the eligibility requirements, improving your rental tactics, and keeping up with future tax adjustments. Our team of experts is available to assist you in maximizing your investment and guaranteeing a smooth transition in 2025. Make sure you take advantage of the advantages by beginning to plan your FHL strategy immediately!


Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page