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Holiday Let Tax Guide

How to save tax on holiday lets (FHL)

Firstly, if you are thinking of investing in a holiday let it is a very tax efficient way of investing in property.  This holiday let tax guide lays out the many tax advantages open to property investors as a result of a holiday let being classed by HMRC as a trade or business.  A buy-to-let on the other hand is classed for tax purposes as an investment and therefore doesn’t benefit from some of these tax advantages.

Lets start by looking at some of the tax saving opportunities for an investor in a holiday let to save on income tax before moving on to look at the various routes to save tax through their capital investment.

How to save income tax with a holiday let (FHL)?

The major attraction of a furnished holiday let (FHL) is that HMRC class it as running a business or trade provided it meets certain occupancy rules.

There are a number of trading expenses or deductions available to the owners of a holiday let to reduce the taxable profit of the the holiday letting business.  If you let properties that qualify as a furnished holiday let, then you will be able to claim tax relief on the following expenses.  This is not an exclusive list of tax deductions for a holiday let as anything that has been reasonably incurred as part of the trade or business could be relieved against taxable profit.

  • Professional fees inc accounting fees – you are entitled to tax relief on accountant fees that have been paid towards the preparation of your holiday home business accounts
  • Advertising – Any costs incurred in advertising your holiday let can be include such as advertising with google or facebook.   if you’re printing brochures, advertising in local papers or sending direct mail, you can claim this back as tax relief
  • Insurance – the costs of insuring you holiday let will be able to claim this back against tax. Make sure you keep all of your insurance paperwork handy.  I currently use Alan Boswell to insure my holiday let contents.  The building is taken care by the management company that runs the mill building in which my holiday let is located.
  • Loan interest – this is a MASSIVE PLUS compared to anybody that also has buy-to-let property where mortgage interest relief has slowly been removed.   if you have used a mortgage or loan to purchase the holiday let, then you can claim the interest of repayments back against your tax in full.  In this way you can still use the rents generated from your guests to pay down you borrowings without incurring a tax charge.
  • Energy bills – any fuel, gas or electricity relating to the holiday let can be claimed back against tax. Do not try to claim energy bills that have not been used exclusively by holidaymakers and tourists.
  • General Repair – Any property including a holiday let will need a whole raft of running repairs from redecoration to new roofs. Nearly all general repair costs can be claimed back against tax. Think about painting and decorating costs. Cleaning and Gardening – if you hire a cleaner or gardener to care for your property, you can claim the cost back against tax
  • Cleaning costs – For most holiday let owners you will not want the responsibility of having to clean and launder the holiday let at every change over.  For my holiday let that can amount to 8-10 change overs every month.  Instead I employ and excellent local cleaning company that specialises in holiday let cleans to do the work for me.  These costs can all be set against the taxable income of the holiday lettings business.
  • Subscription packages – If you are subscribing to any subscription service that include wifi or TV subsription services for your paying guests this is all a legitimate cost to your holiday let and can therefore be offset against your profits.
  • Gardening – if your holiday let is set in grounds want to make a perfect impression upon guests, then you will want to take extra care of your garden and outside areas so don’t forget to include these costs.
  • Travel expenses – any travel expenses in connection with your FHL can be claimed at up to 45p a mile can be included without a taxable benefit being incurred.  You will need to keep a mileage log.
  • Home office – if you do run your business from home don’t forget to claim for your home office.

The profit ultimately you make from you holiday let will be taxed as income and will be added to any other income you earn as part of your tax assessment.  If you do make a loss on your holiday let this loss can be carried forward against the future profits on that same FHL business.  You cannot however off set your losses against other income incurred in that year.

Holiday let tax – splitting the rent tip

Another big advantage with a holiday let which is similar to a buy-to-let is that where there is joint ownership of the property it is possible to split the returns from the property between the owners in the most tax efficient way.  I have dealt before on how to save tax by splitting the rent.

Therefore, where a husband and wife for instance own a property together then the division of the income can be made in a way that is most tax efficient for the couple.

The above are all advantages of running your furnished holiday let as a business but a FHL offers so much more opportunities to save tax for the created property investor.  I will go on to examine the tax saving opportunities of owning a furnished holiday let and some of the tax saving strategies open to property investors.

Business rates tax exemptions for holiday lets

Since I started investing in furnished holiday lets I have benefited from the small business rate relief being levied by councils.  Because a holiday let is classed as a business an investor is able to reregister their property for business rates and thereby benefit for rate relief.  This is not available for buy-to-let investors who continue to be liable for council tax when the property is empty.  This is increasingly charged at penal rates by councils who are keen to discourage landlords not to keep their buy-to-let properties empty for any period of time.

Capital gains tax relief for furnished holiday lets (FHL)

Qualifying FHLs are able to claim Capital Gains Tax relief for business.  These are various and comprise of :

  • Business Assets Rollover Relief
  • Business Asset Disposal Relief
  • Relief for Gifts of Business Assets
  • Relief for Loans to Traders
  • Business Asset Disposal Relief (Entrepreneurs Relief) means that when it comes time to sell your furnished holiday let you should only be liable to pay under Entrepreneurs Relief only 10% on any capital gains during the time that you owned the property as a posed to the 18% currently levied on buy-to-let property disposals for basis rate tax payers or 28% if you are a higher rate tax payer.
  • In addition any capital gains can be first set your annual capital gains allowance.

Business Asset Roll Over Relief allows the deferral of capital gains tax payment depending on certain circumstances.

Capital allowances for your holiday let

Investing in a holiday let will obviously represent a significant capital investment for most people.  Tax relief on your holiday let can be claimed via what are known as capital allowances.

Capital allowances can be claimed on moveable items such as your furniture in your FHL as well as white goods such as fridge/freezer, cookers, electrical goods (TVs) and then flooring such as carpets.

As well as these deductions available on the fitting within your holiday let many holiday let owners don’t realise the significant one off claim that can be made against the fixtures within their holiday let property.  For tax purposes there are two types relating to the nature of the holiday let being taxed as a business.  Firstly, there are integral plant/fixtures which include sanitary ware, integrated kitchen equipment.  Secondly, there are integral features for instance the electrics, heating, air conditioning, etc.

The first set of plant fixtures from a writing down allowance of 18% of the capital cost whilst the second set of features only receive a writing down allowance of 8%.

These integral features can amount to 10-20% of the whole cost of furnished holiday let when purchased so very significant claim against your tax liabilities for that year.  These allowances are only available on a newly converted or built property and can only be claimed once.

The complication is that these expenses will need to be claimed separately as part of your self assessment tax return and cannot simply be deducted as a revenue expense under the land and property section of your tax return.  You may therefore require some specialist tax advice on how to do this.

Holiday lets pension tax bonus

I have said on many occasions in relation to all property investments they are very well aligned to providing the basis of a good pension whether it’s a buy-to-let pension or a holiday let investment.  This is because at the core of all these investments you have an asset (residential property) that has an intrinsic value and which compared to most asset classes is a pretty robust store of value against all variety of economic conditions and crisis.  In the long-term it’s value offers some up side potential when you look at real house price growth over the last 50 years.  House prices have tended to rise at approximately on average 2.4% above the rate of inflation over the long-term which doesn’t sound massive but when you look at that increase compounded and that the fact that for most people holiday lets and other residential property investment is geared (with a mortgage or loan) then these increases can be significantly above many other asset classes.

The other great thing about a holiday lets property pension is that not only are you investing in an asset your also should have a revenue generating asset.  So your holiday let should be generating regular annual income from your guests.  This gross income could be anywhere up to 10% of the capital value of your holiday let.  This lettings income can be a valuable addition to an individuals pension and retirement income.

Finally, the other big advantage of holiday lets which again relates to the business status of this property business is that the income received counts as ‘relevant earnings’ in assessing your potential pension contributions to a qualifying pension scheme.  The tax relief on pension contributions made by an individual into a qualifying pension scheme is limited to the higher of 100% of their relevant UK earnings, or £3,600 per annum.

If you are looking a learning from experts more about investing in a holiday let have a look at the New Investing In Holiday Let Course being run by Property Hawk and leading industry experts.


We have a holiday let with a very cold dated bathroom. If we get it insulated and refitted what tax relief can we claim?

If I kit out my brand new holiday let with say for example £10,000 worth of furniture bedding ect can I claim back £10,000 or does it not work that way?

Hi, this is the first year of our holiday let business. Due to covid it’s unlikely the property will be let for more than ten weeks or so although it will be available for 36 weeks. If we don’t manage to let it for more than ten weeks does this mean that none of the costs associated with the holiday let business will be tax deductible? This would include our interest only holiday let mortgage as well as other costs.

Hi Howard, if the FHL flat is leasehold and there is a substantial service charge to cover the cost of the managing agent, insurance, cleaning of common areas, sink fund for repairs and maintenance, could this be offset against future rental income? Thanks

Hi. I own a lodge for which I pay approx £6k per annum site fees. Can these be offset against profit at all , eg. pro rata to number of days let?

If I was to demolish a house and build a new one as a holiday let, is there any capital deductions on the new build I can use to offset?

Hello what fitting out costs cant you claim for? So can you claim for the electrics plumbing, decorating, fixed flooring etc etc as a cost to set against profits or can these only be recorded as something to off set against capital gains later?
We have converted space above our garage into holiday accommodation thanks

Do set up capital costs have to be incurred in the actual first tax year the business is established or can they be claimed from the prior preparatory year with receipts etc?

Very useful thankyou.

I am airbnb-ing a property that I personally own full time now and its generating a good income.
I pay my wife any extra I earn (over it being a standard BTL) for managing and cleaning the property. She invoices me. is that a legitimate expense?


I am looking to purchase a holiday lodge on a holiday park and have the park manage it (advertise it, let it out, collect the payments) for me, the rental income goes into a owners account run by the park, which i can then withdraw money from (the park takes out the costs for loan finance, cleaning fees, site fees, there management fee, etc from this account.) Am I better off setting up a ltd company and withdrawing the money into a business account, then paying myself a wage, or putting it directly into my personal account and filling out a tax form each year declaring the additional income?

I want to live permanently in my holiday dwelling, have so far paid business rates,how do i change this to residential rates,and what information will the council want.thanks.

Can I loan myself money to by a Holiday Let and claim a reasonable rate of interest as a taxable expense?

My permanent home has been used as a FHL for the last 8 months whilst I was out of the Country. I am now back in residence and have decided to sell it. Will I have to pay any capital gains tax ?


Does the full tax relief on mortgage interest apply even if the holiday let is purchased privately as opposed to buying it through a limited company?

Thanks in advance.

Can you offset research trips i.e. if I wanted to book a stay at another holiday property in an area I was hoping to buy in could I offset the expenses of this trip?

Hi Chris, Is an owner obliged to apply for Business Rates – or can the property be left in its council tax banding? cheers Jim

I am changing use of my well kept/furnished second home into a holiday let. So no capital allowances?
Can wear and tear be claimed in future tax returns?b

My son and I share ownership of a property .
We are changing use of property from second home to holiday let/business.
I intend to be the nominated partner.
What are the tax implications for my son.

Hi, I have one FHL (the converted garage in my former home) & intend to renovate the house to also let as a FHL. Can I offset the costs for the house against the income for the garage?

I have a holiday lodge, that I let through Hoseasons, via the park owner. He says I have to pay him 12.5% tax before he pays me the profits, is this correct and if so what type of tax is this?

What if I rent my house out for two years and then decide to air b and b the property for a number of years after will I still get the 10% tax relief or role over my profits

Again a question regarding furnishings. If I purchase furnishings bedding equipment etc in this current tax year but start the holiday letting from Easter next year (next tax year), can I claim tax relief in this tax year and can the tax relief be claimed in one lump or must it be spread over several years, and if so, how many?
Thanks in anticipation

I have owned a FHL for about 20 years and have just refurbished it including new fitted kitchen (inc oven), flooring throughout, new internal doors, new external double glazed door, curtains and curtain rails and some replacement furniture eg sofa.
Am I able to claim this expense under repair and maintenance or under capital allowance (how do I claim this if I need to?)

Hi. How do you actually set up your property as a FHL? Is there a form you have to fill in right at the start or is it just part of your tax return?

Is a static holiday home classed as a holiday let for the tax benefits? Would you be able to invest in this for my pension

My partner will be moving into my home and will be vacating and setting up her own home as her first and only FHL. Before she moves in with me, can any tax claims for renovation, improvements or modernisation bills and appliances eg new bathroom, central heating, double glazing in readiness for FHL be made before it’s let as an FHL in 3 or 4 months time?

Hi I have 2 probably very silly questions

1) If I remortgage my residential property to fund a FHL can I claim tax relief on the interest. I expect it can only be claimed on a mortgage directly on the FHL.

2) I am looking at purchasing an existing holiday let & the owners have agreed a price with furniture etc included. Am I better off paying less for the property & paying for the furnishings separately so I can claim capital allowance. Or is that only on brand new furnishings?


I am self employed and usually complete my own tax returns but am new to the holiday let business. I rented it out for 49 days between August 2020 and April 2021. I’m hoping business will improve for 2021/2022. However, as I’m under the 105 day qualifying amount do I still have to include the income and expenses on my tax return or only when I let the holiday let for 105 nights +
Many thanks for your help.

Are all properties being converted to FHL liable for council tax whilst they are not yet at the point of being ready to let? Or, if the intention from the start is to create an FHL – ie non domestic property – is it possible to register as such before letting commences?

What happens when the ‘kitting out’ of the property occurs in a prior tax year to the start of the letting? As you don’t register the FHL on your tax return until the first income has been received, right? Thanks, Nick

Did you get an answer to this Q? I too am in the process of major renovation/rebuild/new kitchen etc. but only when this is finished will I be able to let it out. So any claim against initial costs would be retrospective. Is this permissible?

Hi. Am I able to claim costs such as survey and solicitors fees from when I bought my holiday cottage? I bought it last year and started renting it out as a furnished holiday let almost straight away. Many thanks. Carolyn

I am in the process of applying for business rate relief from the Local Authority for a FHL jointly owned by myself and my husband. My husband is a taxpayer, I dont pay any tax, I believe my husband can gift me 100% of rental profit for tax purposes. The LA is asking us to declare whether we are a sole trader/ partnership/ limited company/ trust. Does this mean that I have to register as a sole trader?

Can I take out a mortgage on my holiday let (which I own in full) to pay off mortgages on a buy to let property in order to receive tax relief in the repayments?

Hi Same question as above. I have invested
+/- £ 3000 in new furniture. How does it work? From what I understand I can off set this (as a one off) against my profits, but what about wear and tear? Do I claim for this separately in subsequent years ?

Hi, I am converting an Annexe within my house for holiday let.
Can I offset the cost of the actual conversion against the first year of profit?
Also can I deduct a % of the mortgage interest as an anual expense (considering that we live in the house)

Hi, I am converting a 2 bed Annexe within my house for holiday let.
Can I offset the cost of the actual conversion against the first year of profit?
Also can I deduct a % of the mortgage interest as an anual expense (considering that we live in the house – the annexe would be roughly a quarter of the overall property)

Hi I intend to buy a house and let out 50% as a self-contained FHL and live in the other 50% of the house. Would the 50% I let out qualify as an FHL and can I apportion appropriate tax-deductible costs on a 50/50 basis? Thanks

Hi there

I own a property jointly with my wife.

You say that in a FHL, profits can be allocated unevenly i.e. more to my wife if more tax efficient. Can you confirm that is the same for INCOME?

Because I have other self employed revenue I would take the FHL income above the VAT threshold if any income from the FHL is considered to go to me… effectively affecting margins by 20%.

What does my wife have to do practically to allocate this FHL income to just her? Is this just when it comes to Self Assessment that it goes on her return and I don’t mention any income from the FHL?

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