Furnished holiday accommodation (FHA) is a classification that allows you to take advantage of favourable tax rates when you rent out your property for a holiday let. Here we explain the criteria needed to qualify.
Updated 19 July 2019
Furnished holiday accommodation (FHA) qualifying criteria
For tax purposes, to qualify as furnished holiday accommodation (FHA) the accommodation must be let on a commercial basis and comply with the following requirements:
- The property has to be either in the UK or the European Economic Area (EEA).
- It must be furnished sufficiently for normal occupation.
- The property has to be available to the public as FHA for at least 210 days in the ‘relevant period’.
- It must be actually let to members of the public for at least 105 days in the ‘relevant period’. That excludes ‘long term occupation’, meaning stays of more than 31 days.
- During the ‘relevant period’, no more than 155 days must fall during periods of long-term occupation.
The ‘relevant period’ is the tax year unless the accommodation was not let as holiday accommodation in the previous tax year. In that case it is the 12 months beginning on the first day in the tax year that it is let as furnished accommodation.
The consequence of property income being treated as derived from FHA are:
- Capital expenditure can attract tax relief in the form of capital allowances, as for a trade.
- The restriction to tax relief on finance charges for letting residential property does not apply.
- The results from a UK FHA business are distinguished from those of an EEA FHA business.
- FHA losses from a UK FHA business may be carried forward to be set against future profits of a UK FHA business.
- FHA losses from an EEA FHA business may be carried forward to be set against future profits of an EEA FHA business.
- FHA losses from a UK FHA business may not be set off against EEA FHA profits, or vice versa.
- FHA losses may not be set off against other income
FHL profits are relevant earnings, qualifying for pension contributions.
Capital gains tax
The following are available:
- Roll-over relief.
- Holder-over relief on gifts etc.
- Entrepreneurs’ relief.
- Relief for losses on loans to traders.
Sometimes, the extent of the services supplied as part of the FHA will be sufficient for the business to qualify for 100% business property relief.
Rent from furnished lettings is subject to VAT at the standard rate if it is ‘holiday accommodation’, as defined for VAT. Note that this can include income that does not pass the FHA test.
For VAT purposes, holiday accommodation means accommodation in a building, caravan, houseboat or tent that is advertised or held out as holiday accommodation or as suitable for holiday or leisure use, but excluding hotel accommodation.
VAT registration is necessary if the rents from holiday accommodation, together with any other VATable supplies made by the landlord, exceed the registration threshold – £85,000 currently. If the landlord is already VAT registered, the rents will be within that registration.
Note that this can include VATable property income that does not pass the income tax FHL test.
A self-catering accommodation which is available for short-term lettings for more than 140 days in any given year, is subject to Business Rates, not council tax. Small Business Rates Relief may apply, to give exemption. See here for more details.
Here again the test differs from that for direct tax FHL treatment.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.
Copyright © Shipleys LLP 2019