Is there really that much of a difference between the two? Both are furnished, both are lettings but in the weird and wonderful world of taxation, they are poles apart.

Whilst cost is an obvious consideration when choosing a property to purchase, one cannot overlook the tax advantages and potential rental yield attributable to a furnished holiday let.

Imagine that the beautiful character cottage you have been holidaying at in Cornwall for many years comes onto the market for what you consider to be an affordable asking price. You realise that due to work commitments, holidays at the property will be at a premium but the opportunity to purchase it with a view to moving there on retirement is too much to resist. What are your options if you do take the plunge?

Firstly, you could let the property out as a normal furnished or unfurnished residential let, given that it is located in small town with all the basic amenities that a tenant would require on the doorstep. Of course, this would guarantee a regular income but not necessarily recoup your outlay at a particularly expeditious rate.

A more appealing option may be to enter the furnished holiday let market, which given that you have been paying up to £1,500 for a week in the cottage, could be a particularly lucrative option especially in the summer season.

The tax advantages of owning and letting a furnished holiday let are numerous, in particular the myriad of Capital Gains tax reliefs. Firstly, you need to be aware of the basic qualifying rules whereby the property must be let for 105 days and be available for 210 days in any given tax year. HMRC also stipulate that the property cannot be in ‘longer term occupation’ for more than 155 days during a tax year. The definition of ‘longer term occupation is over 31 days consecutively. When I plug the numbers into my calculator (I’m a Tax Adviser not an Accountant!), this means that there are potentially 155 days for you or the family to spend at the property. There are even periods of grace available where the conditions regarding days let are not met in a particular tax year.

As if that is not good enough, providing that the property has qualified as a furnished holiday let during the final twelve months of ownership, the chargeable gain will be eligible for a 10% tax rate by virtue of qualification for Entrepreneur’s Relief.

If you decide that you want to dispose of the existing property and acquire a larger, more luxurious one at any time, another Capital Gains tax relief often overlooked is Rollover Relief. If you make a considerable gain on disposal of the initial property, that gain can be rolled into the purchase of the new property, meaning that in many situations no tax is paid until the new property is ultimately sold. As death is not a chargeable occasion for rolled over gains, there will be no tax to pay whatsoever if the second property is retained for life with the eventual recipient inheriting it at probate value.

Other tax advantages are capital gains tax gift relief, the ability to count the profit as net relevant earnings for pension contribution purposes and capital allowances on furnishings and appliances.

Consideration should be given to the cost of replacing household furnishings and employing an agent to manage the property but on balance furnished holiday lettings do continue to offer some great tax breaks.

An investment property that could qualify as a long term residential let as well as a furnished holiday let would be tax utopia but to find an area to appeal equally to prospective residential tenants as well as holidaymakers is difficult.

Whether you are deliberating over buying that dream cottage in the UK or villa in the sun (the furnished holiday let rules also apply to properties located in the EEA), to help you have peace of mind where potential tax exposure is concerned, you are welcome to contact one of our experienced tax team for some advice.


The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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  1.'laura gray

    I own a 1 bed flat in Bournemouth which I have let as both a holiday let and residential let over the past 2 years. When I rent it out as a holiday let I am responsible for all utilities and council tax. I am now thinking about the coming year…I’m not sure which is the best for me from a financial point of view? My flat is a 1 bed and ideally situated for both holiday and residential tenants. I cuuenwtly employ an agency to deal with it for me, they charge 10% for residential letting and 15% holiday. I would appreciate your advice! The flat is my only property I lived in it for 8 ears before renting it out and I am thinking about buying another property in Hertfordshire.

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