Stamp Duty for Holiday lettings
Furnished Holiday Lets (FHL) Explained and Their Tax Benefits
A Furnished Holiday Let (FHL) is a type of accommodation where guests typically stay for short durations, such as nights or weeks. In contrast, a residential buy-to-let property involves long-term stays, usually at least six months, under an Assured Shorthold Tenancy (AST) agreement.
While FHLs typically charge per night, buy-to-lets have monthly rents. Furthermore, FHL guests usually don’t cover utility bills, whereas in traditional buy-to-lets they often do. An added advantage of FHLs is that landlords might earn more and save on taxes compared to traditional rentals. Popular platforms like AirBnB and Booking.com make it easy for landlords to list and manage their FHLs. If using these platforms, it’s wise to familiarize oneself with tips to maximize returns.
Tax Benefits for Furnished Holiday Lets (FHLs)
HMRC has set rules for properties to qualify as FHLs:
- An FHL should be available for short-term lets (31 days or less) for a minimum of 210 days a year.
- Personal stays don’t count towards the available days for letting.
- Commercial letting should occur for at least 105 days a year. Reduced-rate lets to friends or extended stays beyond 31 days due to unforeseen events aren’t counted.
- Long-term lets (over 31 days) shouldn’t exceed 155 days in the year.
- The property must be furnished and aim to generate profit.
Failure to meet these rules may classify your property as a standard buy-to-let, leading to potential loss in tax benefits like FHL capital allowances. Ensure you understand these rules or work with a property accountant.
It’s essential to note that AirBnB properties should also comply with FHL tax regulations. In fact, the tax rules for both are identical.
Stamp Duty on Furnished Holiday Lets (FHL) and AirBnB Properties
There’s stamp duty on FHL properties, including those on AirBnB. The rate varies based on property value:
- Up to £250,000: 2%
- £250,001 to £925,000: 5%
- £925,001 to £1.5m: 10%
- Over £1.5m: 12%
However, there are ways to optimize stamp duty expenses. It’s advisable to consult tax professionals for guidance.
Impact of Section 24 Mortgage Interest Relief Cap on AirBnB & FHLs: The Section 24 mortgage interest relief cap impacts buy-to-lets but doesn’t affect FHLs that meet HS253 conditions. This offers a significant advantage for FHL investments as all mortgage interest is deductible. While FHLs might seem an obvious choice, it’s vital to weigh the potential returns against the required effort.
VAT Concerns for AirBnB & Furnished Holiday Lets: Once the income from your FHLs and AirBnB listings exceeds £85,000, VAT registration becomes mandatory. Determining whether to pass on this 20% VAT charge to clients or absorb it is crucial. For instance, a £100 per night rate might decrease to £83.33 after VAT, substantially impacting profits. Balancing client rates and VAT absorption is essential for maintaining profitability.