In this blog we set out the three conditions property must meet to be considered a furnished holiday let and to access all the advantages they bring, and top tip – letting to family or friends at a reduced rate doesn’t count! 

Many Airbnb lets are used as holiday accommodation. From a tax perspective, furnished holiday lettings enjoy some tax advantages over other lets. So, is it possible for an Airbnb let to benefit from these advantages and what conditions must be met?

Qualifying conditions

Simply letting a property as furnished holiday accommodation is not in itself sufficient to qualify for the furnished holiday letting (FHL) treatment. As with other lets, Airbnb lets must meet the conditions set out in the legislation.

The first point to note is that the FHL treatment is only available to properties which are in the UK or the EEA and which are let furnished.

Occupancy conditions

There are three occupancy conditions which must be met for a property to be treated as FHL.

Condition 1 – the pattern of occupancy condition

The pattern of occupancy condition is met if the total of all lettings in the tax year exceeding 31 days is 155 days or less. The nature of holiday letting is multiple short lets rather than longer lets and this condition seeks to recognise this.

Condition 2 – the availability condition

To meet this condition the accommodation must be available for letting for at least 210 days in the tax year. Days where the owner stays in the property do not count as days when the property is available for letting.

Condition 3 – the letting condition

The letting condition is met if the property is let commercially as furnished accommodation to the public for at least 105 days in the tax year. Only commercial lets count towards this total – any days when the property is let to family or friends at a reduced rate or where they are allowed to use the property for free are ignored.

Longer term lets of more than 31 days are also ignored (unless a let which was supposed to be less than 31 days is extended due to unforeseen circumstances, such as a delayed flight or the holidaymaker becoming ill).

Averaging election

If a person has more than one property let as holiday accommodation (whether via Airbnb or similar or otherwise), an averaging election can be made where the letting condition of 105 days is not met. As long as the average let across all properties is at least 105 days in the tax year, the condition is treated as met. Thus, if a person has three holiday properties which were let commercially for periods of 31 days or less for at least 315 (3 x 105) days in the year, the average let would pass the test.

Period of grace election

A second election, a period of grace election, can be made if the landlord genuinely intended to meet the letting condition but was unable to do so, as long as the condition was met in the previous tax year. This will allow the property to continue to be treated as a FHL. If the condition is not met the following year, a second period of grace election can be made. However, if the condition is not met in the fourth year after two consecutive period of grace elections, the property will no longer qualify as a FHL.

Advantages

Qualifying as a FHL offers a number of advantages. It opens the door to various capital gains tax reliefs for traders, including entrepreneurs’ relief. The landlord is also eligible to claim plant and machinery capital allowances if the cash basis is not used. Profits also count as earnings for pension purposes.

Partner note: ITTOIA 2005, Pt. 3, CH. 6 ss. 322 – 328B).

 

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

Airbnb-type lets – is rent-a-room relief available?

Many homeowners have taken advantage of sites such as Airbnb to let out a spare room on a temporary basis or their whole property while they are away. In most cases, as long as the associated conditions are met, hosts can enjoy rental income of up to £7,500 tax-free under the rent-a-room scheme. This continues to be the case as planned legislation to restrict the availability of the relief has not been introduced.

Rent-a-room relief

Rent-a-room relief is a relief that allows individuals to earn up to £7,500 per year tax-free from letting out furnished accommodation in their own home. This limit is halved where more than one person benefits from the income such that each person can enjoy rental income of up to £3,750 per year tax free.

The relief is available to owner occupiers and tenants. To qualify, the rental income must relate to the let of furnished accommodation in the individual’s only or main home. While the relief was introduced to boost the supply of cheap residential accommodation, there is no minimum period of let and applies equally to very short lets. Further, the individual can let out as much of their home as they want.

The relief can be used where a room is let furnished to a lodger. It can also be used where the letting amounts to a trade, for example, where the individual runs a guest house or a bed-and-breakfast or provides services such as meals and cleaning.

Where gross rental income is less than £7,500 (or £3,750 where the income is shared), the relief is automatic – there is no need to tell HMRC.

Where the gross rental income exceeds the rent-a-room limit, the individual has a choice of deducting the rent-a-room limit and paying tax on the excess or calculating the profits in the normal way by deducting the actual expenses. Claiming rent-a-room relief will be beneficial if there is a profit and actual expenses are less than the rent-a-room limit. This is done on the tax return.

It is not possible to create a loss by deducting the rent-a-room limit if, for example, rental income is less than the limit – the income is simply treated as being nil. Where deducting actual expenses from rental income produces a loss, it is better not to claim rent-a-room relief to preserve the loss.

Rent-a-room relief cannot be claimed where the accommodation is not in the individual’s main home, where accommodation is provided unfurnished or where a UK home is let out while the owner is working abroad.

Airbnb-type income

Rent-a-room relief is available for Airbnb-type accommodation as long as the conditions are met. The issue is not whether the income is from an Airbnb-type let; rather, whether the conditions for rent-a-room relief are met. This is likely to be the case if the nature of the Airbnb let is such that it comprises the let of a furnished spare room in the taxpayer’s home, or the whole home for a short period, such as a weekend or a couple of weeks when the homeowner is on holiday.

However, where the individual uses Airbnb or similar to let accommodation in a property which is not his or her main home, for example a holiday cottage, rent-a-room relief is not available and the normal property rental rules apply. The individual may, however, benefit from the property income allowance of £1,000.

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474