Furnished holiday lettings

Property ownership has a number of different tax implications, not to mention the complex rules regarding Furnished Holiday Lettings. Northams can guide individuals in the Devon area through the legislation, whilst helping to minimise their potential tax liability.

Different tax rules apply to income from letting property, which is generally taxed under the property income rules. For many years, the Furnished Holiday Lettings (FHL) rules allowed holiday lettings of UK properties that met certain conditions to be treated as a trade for some specific tax purposes.

Qualifying conditions

The property must be situated in the UK or elsewhere in the EEA. The EEA comprises the 27 states in the EU plus Iceland, Liechtenstein and Norway.

Where there are properties in the UK and the EEA, they are to be treated as two separate property businesses with parallel provisions.

Accommodation is 'furnished' if the visitor is entitled to the use of furniture. There should be sufficient furniture provided for normal occupation.

The business must be carried on commercially. 'Commercially' means let on a commercial basis and with a view to making a profit. Close season lettings may produce no profit but normally help towards the cost of maintaining the property.  This letting can still be treated as commercial. On the other hand, lettings to friends or relatives at zero or nominal rents are not commercial.

After you have decided that your accommodation meets these criteria you will need to see if the property then passes the qualifying tests:

The property must be available for commercial letting as holiday accommodation to the public for at least 210 days during the relevant period;
The property must be commercially let as holiday accommodation to members of the public for at least 105 days during the relevant period. A letting to the same person for longer than 31 continuous days (a period of longer term occupation) is not a letting as holiday accommodation for the purposes of this condition; and
Pattern of occupation
Total periods of longer term occupation must not exceed 155 days during the relevant period.

Effect of meeting the conditions

Holiday lettings that meet the relevant conditions can be treated as a trade for the following purposes:

Losses from an FHL business may only be carried forward against future profits from the same business. This means that profits and losses of a UK FHL and an EEA FHL need to be calculated separately.

There is no restriction on the deductibility of mortgage interest incurred in relation to the FHL business.

Holiday lettings where the property is situated outside the EEA do not qualify under the FHL rules. Instead, they are taxed under the normal property income rules.

Relevant periods

There are three possible 12-month periods that may count as relevant periods for a FHL property:

Examples of relevant periods

  1. A property has been let furnished on a commercial basis since 2010. For 2020/21 the tests are applied to the year of assessment 2020/21 itself.
  2. A property is acquired on 1 January 2020 and is let furnished on a commercial basis from 1 March 2021. To determine whether the letting qualifies for 2021/22 the tests are applied to the 12 months from 1 March 2021. For 2021/22 the tests are applied to the tax year itself.
  3. A property has been let as furnished accommodation on a commercial basis for many years but letting ceases on 30 September 2020 and the property is sold on 1 December 2020. To see if 2021/22 qualifies, the tests are applied to the 12 months ended on 30 September 2020.

Occupancy Threshold

There are two elections you can make to help you reach the occupancy threshold.  If you have more than one property the 'averaging' election might be helpful and if you have a property that reaches the occupancy threshold in some years but not in others you could use a 'period of grace' election to help you to reach the threshold.

As regards averaging, where a person has a number of units of accommodation that are let for holiday purposes:

Example illustrating the averaging rule

Joe lets four holiday cottages during 2019–20, and all would otherwise qualify as furnished holiday lettings. The actual letting periods are:

No 1 140 days
No 2 128 days
No 3 120 days
No 4 100 days
Total 488 days
Average 488 ÷ 4 = 122 days

By averaging the four, all will qualify. Without averaging, No 4 would not qualify.

Period of grace

In addition to the option to use averaging to help meet the occupation threshold there is also the possibility of making an election for a 'period of grace'.

A period of grace election allows you to treat a year as a qualifying FHL year where you genuinely intended to meet the occupancy threshold but were unable to meet it.  In order to qualify for this, the property must have reached the occupancy threshold in the previous year, either on its own or because of an averaging election. If the property still does not meet the occupancy threshold in the year after that, providing an election has been made for the earlier year, this can also be treated as a qualifying FHL year.


Nalini lets a property in Italy and it would otherwise qualify as an FHL. The actual lettings periods are:

Year Days let Election? Qualifies?
2019–20 110 None required Yes
2020–21 73 Yes Yes
2021–22 80 Yes Yes
2022–23 106 None required Yes

Nalini qualifies in all four years.

If the property still doesn't meet the required letting level in the fourth year (after two years of being treated as qualifying) then that property is no longer an FHL property.

The property must meet the availability threshold (and the pattern of occupation test). You must be able to show that there was a genuine intention to let the property in the year for which a period of grace election is made.  For example, where you have marketed a property to the same or a greater level than in successful years this might be used as evidence of a genuine intention to let.

If the lettings are cancelled due to unforeseen circumstances, for example, because of extreme adverse weather conditions or an outbreak of foot and mouth disease, then it is likely that you would be able to say that there had been a genuine intention to let.

If you have more than one FHL property, sometimes both averaging and period of grace elections may be used to ensure a property continues to qualify.

Limited companies

The FHL provisions apply to both individuals and companies, although clearly many of them apply only to individuals. However, capital gains exemption for disposals by companies with substantial shareholdings may also apply. Changes in provisions for corporation tax normally run with the financial year (starting on 1 April) rather than the tax year (starting on 6 April), and the April dates mentioned in the text should be read accordingly.

If you are in the Devon area and would like further help with Furnished Holiday Lettings, please contact Northams.