Investing in a holiday let property can be an exciting venture, offering both personal enjoyment and potential financial benefits. However, it’s essential to be aware of the tax obligations that come with this type of investment.

In this article, our Tax team explore the various taxes associated with a holiday let property, providing you with a comprehensive understanding of the tax implications involved.

Income Tax

Income tax is the primary tax consideration for owners of holiday let properties in the UK. Rental income generated from your holiday let is generally subject to income tax. However, there are specific tax rules that distinguish furnished holiday lettings (FHLs) from standard residential buy-to-let properties.

To qualify as a FHL, your property must meet certain criteria, including availability for short-term lets for at least 210 days per year and actual rental periods exceeding 105 days. If your property qualifies as a FHL, you may be eligible for certain tax reliefs and benefits, such as the ability to claim Capital Allowances on furniture and fixtures.

Business Rates

You may be able to claim Small Business Rate Relief.

Capital Gains Tax (CGT)

If you are looking to sell a holiday let property in the UK, you may be liable for capital gains tax (CGT) on any profit made.

CGT is calculated based on the difference between the purchase price and the selling price, subject to any allowable deductions or reliefs.

However, special rules apply to qualifying FHLs. Under the current legislation, if your property qualifies as a FHL for two years before the sale, you may be eligible for Business Asset Disposal Relief, resulting in a lower rate of CGT.

Value Added Tax (VAT)

In some cases, holiday let owners may need to register for VAT if their rental income exceeds the VAT registration threshold (currently £85,000 per year). By voluntarily registering for VAT, you can charge VAT on the rental fees but also claim back VAT on eligible expenses related to your holiday let property.

Owning a holiday let property in the UK can be a rewarding investment. However, it is essential to understand the tax obligations associated with this venture. By familiarising yourself with the specific tax rules for furnished holiday lettings, keeping accurate records, and seeking professional advice when needed, you can ensure compliance with tax regulations and maximize the financial benefits of your holiday let investment.

With taxes subject to changing, it’s always best to seek tax advice from experts like our team here at robinson+co to ensure you remain compliant and don’t come up against any unexpected taxes. Give us a call on 01900 603623 and see how we can help you today.