Looking to set up a furnished holiday let business?

5 Things to know when setting up a holiday let business

Holiday accommodation is a standard rated supply for VAT

So you need to charge VAT to your customers if you are already VAT registered. VAT registrations apply to all activities carried out under that registration. For example, Mr and Mrs Smith who run a farm business and are registered for VAT, must charge VAT on their holiday let income, even if it is seen as a separate business. However if Mr Smith takes it on himself, he is not VAT registered and does not need to charge VAT until his own total VATable income exceeds the VAT registration threshold, currently £85,000.

FHLs can receive more generous tax relief than normal residential letting.

Not only can the business owner claim tax relief on items such as furniture, white goods etc under the capital allowances regime but certain building fixtures such as electrics, heating or ventilation systems will also qualify for tax relief.

If the FHL is run as a partnership, profits can be allocated however

This is especially useful for married couples to be able to vary their profit shares to ensure tax efficiency. By contrast, a normal residential let owned jointly by spouses is a 50:50 split by default.

It is possible to roll over a capital gain

There is possibility to roll over a capital gain on the sale of business assets if the proceeds are reinvested in an FHL. This is a useful tax-deferral opportunity.

There are rules to be able to qualify for the beneficial FHL tax reliefs.

These refer to the availability of the property for letting – at least 210 days in the year; the actual letting – at least 105 days in the year; and the requirement that total lettings in excess of 31 days are not more than 155 days in the year.

Advice should be sought on any new business to ensure you maximise your income and don’t fall foul of the tax traps.