Furnished Holiday Lettings

2 Nov 2020

cabin by sea

A property that qualifies as a Furnished Holiday Letting (FHL) can benefit from various tax reliefs that are not generally available to property rental businesses. In this factsheet we outline the various factors that need to be considered to ensure your property qualifies, including the impact of the Coronavirus restrictions.

What is a Furnished Holiday Let?

To qualify as an FHL, a property must be situated in the UK or the European Economic Area (EEA), it must be furnished and let on a commercial basis and the following conditions need to be satisfied:

  1. The property must be available for letting for 210 days a year; and
  2. It must actually be let for 105 days a year (the let days test); and
  3. The property must not normally be let for periods of more than 31 consecutive days to the same person, but if it is so let, those let days do not count towards the number of let days in point 2 above.

There are two elections which can be made to reach the let days test. Where more than one FHL property is let in a year, an averaging election can be made to average the occupancy for all the properties that are let as FHLs. Alternatively, if a property meets the letting condition in some years but not others, a period of grace election can be made.

Averaging election

In looking at whether the let days test is satisfied, the letting of all accommodation by the same individual can be averaged by submitting an election to HM Revenue & Customs (HMRC) by the first anniversary of 31 January following the tax year to which it is to apply.

For example, if two holiday cottages are owned and both are available for letting for 210 days in a tax year and one is let for 120 days but the other is only let for 90 days, they will both qualify as FHLs if an averaging election is made.

Period of grace election

If a property does not meet the let days test , an election can be made where a FHL property is let in one year and meets the qualifying conditions, either on its own or as a result of an averaging election for that year, but does not meet the qualifying conditions in the next, or subsequent year. It is important that the FHL is available for commercial letting, but circumstances are such that the FHL does not meet the let days test.

If the FHL doesn’t reach the lettings days threshold after two consecutive period of grace elections the property will not qualify as a FHL.

The period of grace election must be submitted to HMRC by the first anniversary of 31 January following the end of the tax year to which is it to apply.

Impact of government lockdown rules on FHLs

Due to lockdown starting in March 2020, some holiday homes were forced to shut, which would have significantly reduced the number of days when properties were available to be let. Additionally, when properties could open again, there were increased compliance requirements which could have impacted the situation further.

The government have not announced any transitional provisions for FHLs where the letting day count has been reduced over and above the usual elections, and therefore owners should consider the period of grace election.

A key point to be aware of is that if owners decide not to reopen their properties for guests due to having received grants to cover any lost income or safety concerns for guests, the business may lose the benefit of being treated as an FHL.

Advantages of qualifying as a FHL

If a property qualifies as a FHL there are a number of tax reliefs available in relation to the property.

Income tax

April 2017 introduced rules restricting the amount of income tax relief available for the finance costs of a let property. These restrictions do not apply to FHLs and so full relief can be obtained for finance costs.

Capital allowances, which reduce the taxable profits of an FHL, are available against the cost of providing furniture and equipment such as cookers, washing machines and beds. Where the property is used for private purposes, the allowances will be restricted to reflect the private use.

Profits from an FHL are treated as earned income for the purposes of pension contributions, which is particularly useful for an individual with limited earnings.

Capital gains tax

For capital gains tax purposes, the following reliefs are available in relation to FHLs:

  • Business Asset Disposal Relief (previously known as Entrepreneurs’ relief) – the gain on a disposal of an FHL may be charged to capital gains tax at 10%.
  • Rollover relief – the gain on another qualifying asset may be rolled into the purchase of an FHL or the gain on the disposal of an FHL may be rolled into the purchase of another qualifying asset.
  • Business asset gift relief – the gain on the gift of an FHL can be held over for CGT purposes.

The rules regarding the availability of each of these reliefs are complex and the reliefs may be restricted if the conditions applying to each of them are not satisfied. Further advice should be sought prior to the disposal or acquisition of a property to maximise the reliefs available.

Inheritance tax

Following successes in the courts by HMRC, notably the Pawson (2013) and Ross (2017) cases, it had seemed the days in which Business Property Relief (BPR) was available for inheritance tax purposes on FHLs were firmly in the past. HMRC has viewed FHLs as predominantly investment businesses rather than trading businesses and has denied claims for BPR.

However, taxpayers had confidence following the result in the case of Executors of Joyce Graham (deceased) v HMRC) which was a win for the taxpayer. This case suggests that for a suitably structured FHL business providing services over and above accommodation, BPR may be available. It was noted that a high level of care was ‘lavished’ on the guests in the Graham case, which provided evidence that there was a property business in existence. FHL accommodation can represent a business qualifying for BPR, but the nature and quality of the services provided is what makes the difference to a successful BPR claim.

A recent case delivers a blow to that confidence. In Cox (executors) v HMRC the case was won by HMRC on the basis the additional activities and services provided at the holiday apartments were normal holiday activities (not actually provided by the business) and not exceptional enough to lead the business to be treated as a trading business for BPR purposes. This outcome seems to indicate that HMRC would deny BPR unless the services provided are close to that of a hotel, even if a high level of service is provided.

Other issues


Losses are ring fenced to be set against profits of other FHL profits, with UK FHLs and EEA FHLs being treated as separate businesses.

Stamp Duty Land Tax

For the purchase of residential properties between 8 July 2020 and 31 March 2021, there is an SDLT holiday whereby SDLT is charged on the amount paid above £500,000.

If you own, or part own, more than one residential property worth £40,000 or more, a 3% surcharge of SDLT will be charged on the purchase of a new property; this includes FHLs. This will lead to SDLT being payable at 3% on properties purchased with a value of up to £500,000, and 8% on properties purchased between £500,001 to £925,000.


If you are already a VAT-registered person, or are required to be VAT registered, VAT will need to be charged on the FHL income.

It should also be noted that if VAT has not been charged but should have been, HMRC will deem the rent to be VAT-inclusive.


There are advantages to letting a property as an FHL but, as ever, the rules are complex and advice should be sought for your specific situation before taking any action. In particular following the events of 2020 where certain conditions may not be met, a review of your particular position should be carried out.

For advice regarding any of the issues raised here, please contact your usual Saffery partner, or contact Zena Hanks, E: [email protected].

This factsheet is based on law and HMRC practice at 1 November 2020.

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Zena Hanks
Partner, Bristol

Key experience

Zena is a partner in the Bristol office. She specialises in acting for private clients in all aspects of their...