Occupancy Of A Holiday Let (FHL)

What are the occupancy conditions of a holiday let?

If you are considering investing in holiday lets there are a series of occupancy conditions that must be met in order for it to qualify for tax purposes as a Furnished Holiday Let (FHL).  It is very important that a property investor understand these conditions as failure to meet the holiday lettings occupancy rules could have very serious implications for the very significant tax advantages of owning and letting out a holiday let.

Qualifying occupancy conditions of a holiday let

What are the three qualifying conditions that must be met by your furnished holiday let in order for it to be classed a Furnished Holiday Let (FHL)?  The 3 conditions that have to be met as laid out by HMRC in their Furnished Holiday Letting HS253 guide are:

• the pattern of occupancy condition
• the availability condition
• the letting condition

Pattern of occupancy condition for your FHL

If the total of long-term lets i.e. over 31 day in length exceed 155 days then your furnished holiday let (FHL) will fail to meet the criteria set out by HMRC.  The reason for this is to stop the use of long-term lets mascurading as a holiday let whilst still benefiting from the considerable tax advantages available to holiday lets because they qualify as a trade or business under HMRC rules.

Availability condition of your holiday let

Your holiday let must be available for at least 210 days to qualify as a Furnished Holiday Let (FHL).  This is to ensure that the holiday let is genuinely available as a commercial let for paid for members of the public to stay.  You are not allowed to count days where you or your family stay at the property in the 210 days.

Letting condition for your holiday let investment

As well as the availability condition referred to above an investor must also have let their holiday let for at least 105 day per year for it to qualify.  The reason HMRC have instigated this rule is to prevent the sham owning of a holiday home by second home owners who don’t really want to let the property out and ensure this by either not marketing the holiday let properly or having it advertised at unfeasably high rents so no holiday maker or guest can afford to let the property.

The 105 days must exclude any longer lets of 31 days or more unless these have been exceed because of something unanticipated that has happened such as the guest falls ill or their flight has been postponed.  I think both of these are more recent additions to the lettings arena resulting from Covid-19.

However, if your holiday let fails to attract 105 days let to a paying guest don’t worry all is not lost!

HMRC has helpfully, instigated several ‘get outs’ that can ensure that a holiday let investor that they do not fall fowl of the lettings legislation.  They have instigated several elections that allow a holiday let investor to still qualify.

The two ways of not falling fowl of the HMRC occupancy conditions for a holiday let are:

• the averaging election on your holiday let
• period of grace election election for your holiday home

Holiday lets occupancy elections (FHL)

The two ways that a property investor may still meet the HMRC qualifying criteria for their furnished holiday let despite not letting the property for sufficient number of bed nights are through utilising the following elections:

Averaging election on a holiday let

This only applies where you let more than one holiday let properties and is particularly useful where you might have a high level of occupancy in one property but are struggling in the early days to achieve the occupancy in the holiday let in the new property.

In simple terms it means that you can add up the occupancy for each of your holiday lets and then providing the average qualifying occupancy is above the 105 day threshold all of the properties retain their qualifying status.  So for instance, I have a luxury holiday apartment in Bakewell that let’s incredibly well with occupancy levels of 300 days per annum.  My new Penthouse Apartment in Nottingham is less popular for various reasons but let’s say for 50 nights making a total of 350 bed nights or an average of 175 nights for each holiday let property.  In doing this both properties still qualify as furnished holiday lets (FHL).  The more holiday lets you own the more you have to average out over.

Period of grace election

In the early days of letting out a holiday let to guests there will be many things that you will not know about the business of holiday lettings.  It is therefore likely that you may not reach the required target of letting out your property for the required 105 nights in the year.  HMRC recognises this and where you can demonstrate that :

you had a genuine intention to let the property in the year. For example, where you have marketed a property to the same or a greater level than in successful years, or where the lettings are cancelled due to unforeseen circumstances, including extreme adverse weather.

The period of grace election can work for up to 2 consecutive years and can also be used with the averaging election referred to above.

The period of grace election can be made through the Self Assessment UK property pages and is made retrospectively.

What happens if the property stops being a FHL?

In the situation where your property no longer meets the qualifying criteria of being a furnished holiday let because:

• the holiday let is sold
• the holiday let is used for private occupation
• the occupancy criteria previously set out are not met

The special tax treatment for the holiday let as a business no longer applies to your property and you will have to aportion the revenue and tax charges accordingly for the relevant tax period.

To find out what are the considerable tax benefits of renting out a furnished holiday let have a look at our FREE holiday let tax guide.