The Furnished Holiday Lettings (FHL) scheme was introduced in Finance Act 1984 in order to protect the interests of thousands of seaside landladies with small guest-houses, after losses by taxpayers in cases claiming that their furnished lettings business amounted to a trading activity.
Qualifying as a FHL means the rental business is treated as a trade for access to valuable reliefs, including:
- capital allowances – the cost of capital items such as furniture is deductible from profits
- capital gains tax reliefs, including rollover relief, entrepreneurs’ relief, gift relief can reduce tax when the business or property is sold
- personal loans made to the business are tax deductible
- the business may qualify for Business Property Relief from inheritance tax
- FHL profits are relevant earnings for pension purposes
- If the business is jointly run by spouses, profits can be split however they choose. Standard rental businesses must split profits either 50/50 or in line with actual beneficial ownership
- No restriction on the deduction of finance costs for a FHL business.
To qualify as a FHL the broad conditions are that the property must be:
- Located in the UK or the European Economic Area
- Let commercially
- Available to let for a minimum of 210 days per year, actually let for a minimum of 105 days per year, and not generally let for longer periods over 31 days.
One further thing to bear in mind: if turnover is above the VAT threshold of £85,000, the business must register for VAT and charge VAT on bookings.