Furnished Holiday Lets and VAT

The furnished holiday let (FHL) rules allow holiday lettings of properties that meet certain conditions to be treated as a trade for some specific tax purposes. As an FHL is treated as a business, it is important to remember that VAT must be accounted for on furnished holiday lettings once the VAT registration threshold is surpassed. 

This means that all FHL income would be subject to VAT at the 20% standard rate once the VAT registration threshold, currently £85,000, is breached.  Anyone with an FHL with gross rentals exceeding £85,000 in the previous 12 months or expected to exceed £85,000 in the next 30 days is required to register for VAT. If the owners of an FHL business already hold a VAT registration in relation to other business activity, then the FHL income would be subject to VAT from the start. Of course, VAT registration may offer some benefits in allowing for the VAT recovery on refurbishment, maintenance and day-to-day running costs associated with the property in question.

In order to qualify as a furnished holiday letting, the following criteria need to be met:

  • The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
  • The property must be located in the UK, or in a country within the EEA. 
  • The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.

In addition, the property must pass the following 3 occupancy conditions. 

  1. Pattern of occupation condition. The property must not be used for more than 155 days for longer term occupation (i.e. a continuous period of more than 31 days).
  2. The availability condition. The property must be available for commercial letting at commercial rates for at least 30 weeks (210 days) per year. 
  3. The letting condition. The property must be let for at least 15 weeks (105 days) per year and home owners should be able to demonstrate the income from these lettings.  
Source:HM Revenue & Customs| 10-07-2022
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