Tax Benefits of Letting Furnished Holiday Let Tax Rules inc Stamp Duty

Simon Misiewicz

Expat & Property Tax Specialist

10th June 2020

What is a Furnished Holiday Lets (FHL) and what are the tax relief benefits?

A Furnished Holiday Let (FHL) is where people stay for a few nights or weeks. A residential buy-to-let is where someone stays in a house for a minimum of six months under an Assured Shorthold Tenancy agreement known as an AST.

Furnished holiday lets usually charge per night stay. This differs from a buy-to-let, where you charge a monthly tenant. Someone staying in an FHL  would not be expected to pay the utility bills. This is in contrast to a single buy-to-let. Landlords can make more money from FHLs than from single-let property investments. The same investors can also save tax compared to those that invest in single lets.

Many landlords will use AirBnB and, and other platforms to get bookings for their FHLs. Each is a simple platform where you list your property, and the guest will book and pay for their stay. It might be helpful to review the tips for AirBnB to get the most out of your investment.

There are many tax relief benefits of Lettings of Furnished Holiday Lets (FHLs) for many UK landlords.

HMRC FHL tax rules

Some Furnished holiday letting tax rules must be met to qualify as an FHL, as shown on HMRC help sheet 253. Please find below a summary of the key points:

– Your FHL must be available for letting as FHL of 31 days or less per letting for at least 210 days per year.

You cannot count the days you stay in the FHL since HM Revenue and Customs (HMRC) don’t consider the FHL available for letting while you stay there.

– You must let the FHL commercially to the public for at least 105 days in the year. Don’t count days when you let the FHL to friends or relatives at zero or reduced rates, as this isn’t a commercial let. Don’t count longer-term lets of more than 31 days unless the 31 days are exceeded because something unforeseen happens.

– You must not let the FHL on lets of longer than 31 days for more than 155 days during the year according to the furnished holiday letting tax rules by HMRC

– The furniture and furnishings must be provided with the FHL.

– The FHL must be let commercially with a view to the realisation of profits.

Failing to adhere to the furnished holiday letting tax rules will result in the property being considered a traditional buy-to-let. This could mean dire results for landlords as they lose out on FHL capital allowances and will pay more money to HMRC due to the Section 24 mortgage interest relief cap.

Please work with your property accountant to work through the complex HMRC furnished holiday letting tax rules.

If you list your property on AirBnB or, you should know that you also need to follow the Furnished Holiday Letting tax rules. AirBnB tax rules are the same as the above.

Our property accountants help landlords maximise the tax benefits of Letting Furnished Holiday Lets (FHLs). There are more tax relief benefits with FHL than there are with buy-to-let property investments.

Stamp duty on Furnished Holiday Lettings

You will pay stamp duty on furnished holiday letting properties and AirBnB listings. SDLT and the 3% SDLT surcharge will apply to holiday lets and serviced accommodation as HMRC states they are a dwelling.

HMRC explains where cases involving bed and breakfast establishments or guest houses will be treated on their merits. However, a bed and breakfast (B&B) establishment with bathing facilities, telephone lines etc., installed in each room (available all year round) would be considered a non-residential property. This is in line with s.116(3)(f), which states that “a hotel or inn or similar establishment” is not used as a dwelling.

The above also means that guest houses and B&B will not be subject to the 3% SDLT surcharge. Another tax benefit of an FHL that provides additional services.

Your buy-to-let property would be deemed mixed-use if your holiday let, guest house, and AirBnB listing had an office where you keep paperwork. This means that the non-residential rates of SDLT would apply. The 3% SDLT surcharge would not be applicable.

UK landlords looking to invest in FHLs will need to consider stamp duty. The SDLT rate applied to most transactions will be set at the residential-use stamp duty.

Scaled Charge
Up to £250,000 2%
From £250,001 to £925,000 5%
From £925,001 to £1.5m 10%
Over £1.5m 12%

There are ways to minimise stamp duty on furnished holiday lets, and you are advised to work with tax accountants to minimise tax wherever possible. Please note that the stamp duty paid is a capital cost. This will help you reduce your capital gains tax liability when the FHL is sold.

FHLs and Section 24 mortgage interest relief cap

We wrote an article about the Section 24 mortgage interest relief cap. We also explored how the Section 24 mortgage interest relief cap may be mitigated.

You can offset all the mortgage interest if you meet the HS253 conditions. Unlike buy to lets, where the amount of interest you can claim is now 0%.

Not only can you make more money on your Furbished Holiday Lets using Airbnb, but you save tax too. It sounds like a no-brainer, but there are many things you need to consider, such as the additional work involved. It is a balance between making money and spending more time in your rental business.

There is a significant tax benefit of investing in FHL over buy-to-let properties because of Section 24 mortgage interest relief cap.

FHL and Value Added Tax (VAT)

Once you reach an income level of £85,000 on your FHLs listings, you must register for VAT. This brings your first issue of the more significant complexities of running your rental business.

Who pays your VAT bill? It is a good question. You could start to lose the competitive edge if you need to charge an extra 20%. This is especially the case if your clients cannot claim back VAT.   The alternative is that you absorb the 20% VAT charge. This means that you will not lose clients but will lose profit margin.

What are you to do? It would help to determine what you can afford to absorb the VAT bill. For example, you may charge £100 per night for your FHL, but the cost of running it is £70 if you absorb the total rate of 20% VAT to keep the price at £100. The money you will receive will be reduced to £83.33 after VAT.

This now gives you a nightly profit of £13.33 rather than the previous £30. This may not be sufficient, so you may decide to increase the price to the client to £110, including VAT. This means the money in your pocket of £91.67 is reduced from the original £100. This provides you with an improved profit compared to you attempting to absorb the VAT payment.

There will always be a compromise regarding what VAT you absorb and what VAT you pass on to your clients on your furnished holiday lettings and AirBnB listings.

Navigating the world of furnished holiday lettings can be intricate, especially when it comes to understanding the specifics of furnished holiday lettings tax and furnished holiday let tax. With ever-evolving holiday let tax rules, it's vital to stay informed on the tax on holiday lets to maximize your returns. Whether you're diving into holiday lettings or keen on holiday rental optimisation, understanding the nuances of furnished holiday letting and furnished holiday lets can significantly boost your investment's success.


FAQ Furnished Holiday Lettings

What are the benefits of investing in furnished holiday lettings compared to traditional rental properties?

Furnished holiday lettings offer certain tax advantages, especially when it comes to furnished holiday lettings tax relief on mortgage interest and capital allowances. They can also yield higher rental income during peak tourist seasons.

Can you explain the furnished holiday let tax implications for a first-time investor?

Absolutely! The furnished holiday let tax system is distinct from other rental properties. It provides specific reliefs, but in return, there are criteria that the property must meet, like being available for and actually rented out for a certain number of days each year.

With the ever-changing holiday let tax rules, how can I ensure I'm compliant and maximising my returns?

Staying updated on the holiday let tax rules is crucial. It's wise to consult with a tax advisor familiar with tax on holiday lets to ensure you're meeting all requirements and taking advantage of available benefits.

How do furnished holiday letting properties differ from standard holiday lettings in terms of management and potential income?

Furnished holiday letting properties typically require more hands-on management due to shorter rental periods and higher turnover. However, they can generate higher weekly rental income than standard holiday lettings, especially during peak seasons.

: Are there any tips for holiday rental optimisation to boost my furnished holiday lets' performance?

Definitely! For holiday rental optimisation, consider enhancing your property's amenities, marketing effectively to target audiences, and pricing competitively based on demand and season.

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