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Crucial Tax Accounting Tips for Holiday Let & Airbnb Owners
*Please note that following the 2024 Spring Budget, many of the FHL benefits mentioned below are being scrapped in April 2025.
As an owner of a holiday let or Airbnb, navigating the complexities of tax accounting is crucial for maximising your financial returns and staying compliant with tax regulations.
Investing in furnished holiday lets can be a lucrative venture, but are you fully leveraging the tax perks? This guide dives into the key strategies to boost your profitability through savvy tax planning for your furnished holiday lets, offering expert tips and actionable insights.
FHL or Standard Rental Property?
Identifying whether your holiday let qualifies as a Furnished Holiday Let (FHL) or a standard rental property under tax laws is the first step. There are a number of conditions that determine whether or not your property can be considered an FHL.
An FHL is defined as a commercially let, fully furnished property located in the UK or EEA, intended for profit-making through self-catering accommodation.
The Essential Occupancy Criteria Key to FHL status is meeting specific occupancy conditions: The property should be available for at least 210 days as furnished holiday accommodation annually and rented out to the public for a minimum of 105 days. Additionally, no single tenant should occupy the property for more than 31 consecutive days within a seven-month period. We recommend checking the latest FHL rules on the HMRC website to check your property’s eligibility.
If your property qualifies as a Furnished Holiday Let (FHL), you can enjoy certain tax advantages, such as the ability to claim capital allowances, which we discuss below.
Capital Allowances for FHLs: What Can you Claim?
As an FHL business owner you are eligible for a number of tax deductions for assets that are part of your holiday let business, helping to reduce your taxable income. Here are some common allowable expenses for FHLs:
- Furniture
- Household appliances
- Property management equipment
- Household fixtures
- Building and contents insurance
- Plant and machinery installation
FHL owners can also deduct certain operating expenses from their revenue. Eligible costs include:
- Utility bills
- Maintenance costs for the upkeep of the property
- Cleaning services
- Marketing, photography, website and Airbnb listing costs
It’s important to understanding the difference between repairs (usually deductible) and improvements (often capitalised and depreciated) when categorising any works on your property as this can impact your bottom line.
To ensure you are maximising the allowable expenses for your property we recommend maintaining detailed records of all rental income and associated expenses. This includes booking fees, cleaning costs, repairs, utility bills, and any other expenses related to maintaining and renting out your property.
Keeping detailed records is easier when using accountancy software such as Xero, helping your eligibility when claiming all permissible deductions and preparing accurate tax returns.
Other Tax Rules and Benefits for FHLs
There are a number of other unique tax rules for FHLs including:
- Pension Contributions
The revenue generated from a furnished holiday let is categorized as Net Relevant Earnings (NRE) in terms of pension contributions, enabling you to make pension contributions with tax benefits.
- Inheritance Tax
Planning for the future includes understanding the inheritance tax implications for FHLs, with potential for Business Property Relief depending on the level of services provided.
- Interest on Mortgage Payments & Other Property Loans
Owning a Furnished Holiday Let (FHL) allows you to fully deduct 100% of your mortgage interest expenses from your taxable income, effectively reducing your overall tax liability. This differs from long-term lets where only 20% of interest costs can be deducted.
Unsure about Tax Implications for your Holiday Let or Airbnb? We Can Help!
For holiday let and Airbnb owners, managing tax accounting effectively is a critical aspect of the business. Owners can enjoy benefits like income tax deductions, capital allowances for items like furniture.
If you’re unsure where to start tax accounting for your holiday let business, engaging with expert accountants such as Linggard & Thomas can help. We can provide you with tailored advice for your holiday let or AirBnb and ensure you’re taking advantage of all available tax benefits.
Get in touch today to see how we can empower your business through our accountancy services.
