Furnished Holiday Lets

Why you should be looking at furnished holiday lets

The Daily Telegraph reported in June 2022 that “…residential Buy to let landlords could soon turn a loss as higher interest rates bite, while the Government’s buy-to-let tax crackdown further amplifies the pain of soaring mortgage costs.” This could make holiday let investments of more interest to new and existing property investors. 

The residential buy-to-let market has experienced a major downturn in recent years, largely due to tax implications for landlords, prompting investors to seek alternative options. Landlords are now taxed on their revenue, rather than on the profit after mortgage costs. A further change introduced in 2016 prevents landlords from being able to reduce the income tax they pay on rental earnings by 10 per cent for ‘wear and tear’ to their property. Now, only the cost of replacing furniture or building work can be deducted. Add to this the slow-down in the growth of house prices amid the current cost of living crisis and the reasons for the decline of the residential buy-to let market becomes clear.

The Telegraph article of June 2022 explains that buy to let yields have hit a record low because house prices climbed more quickly than rents and that the increase in the Bank Rate to 1.25% will cause the average net profit of a new buy to let property to fall by 15%.  Hamptons Estate Agents is quoted as saying: “It will only take the Bank Rate to reach 2pc before the average landlord on higher-rate tax would see their profit more than halve”.  Additional source corroborate the barriers for residential landlords:

  • Schofields insurance reported that “Increasing numbers of landlords are fleeing the buy-to-let market after their profits were hit by stringent new tax rules.” And stated: “At peak season, a holiday let can earn you as much in a week as you would in a month from buy-to-let. Holiday let landlords can earn up to 30% more yield than their buy-to-let counterparts.” 
  • “Holiday lets in the UK are becoming increasingly popular, with many areas offering good yields for landlords considering a move away from residential buy-to-let” WHICH.CO.UK 
  • Sam Meadows, Personal Finance Reporter at The Telegraph observed: “Squeezed buy-to-let investors appear to be shifting to holiday lets in pursuit of better returns.”
  • “Buy-to-let landlords have been hit with a range of tax measures, which taken together could seriously dent their profits.” YOURMONEY.COM 

On the flip side qualifying, Furnished Holiday Lets can potentially achieve a tax-free rental income for up to four to eight years[1]. There’s great news for savers too, as personal income, earned through a Furnished Holiday Let, can contribute to your annual pension allowance and the current market it looking to stand up to current pressures well:.


The UK Tourism & Staycation Economy 

  • Property Investor Today advised that holiday let owners are looking to benefit from staycation bookings that surpass pre-pandemic levels.
  • Tourism market forecast growth 87.5% to £257b by 2025 (Deloitte ONS) 
  • The UK’s travel and tourism sector’s contribution to the economy could rise to £192 billion in 2022.  
  • 123 million domestic holidays taken in 2019 over 93 million international holidays. 
  • The Staycation Market Report 2021 found that 53% of British people surveyed said they intended to holiday in the UK in 2022.
  • Travel Weekly reported that 83% of those who took a staycation in 2021 planned to do so in 2022.
  • Finance News suggest that the Staycation “Boom” is an uptick in a stable domestic tourism industry worth over £1.6 trillion.


Benefit from favourable tax regulations 

A furnished holiday let or FHL is a furnished property that is let for short periods. To qualify as a furnished holiday let (FHL) for tax purposes, your property must be available to let for at least 210 days a year and let commercially to the public for at least 105 days in the year. This does not include days you’re staying there or days that your property is let out to family and friends for free or at reduced rates.  These criteria are all met though the Away Resorts investment buying option and can also be met using our Managed Letting Service, depending on how often you opt to use your holiday home yourself.  

If you let properties that qualify as Furnished Holiday Lets, subject to certain criteria, you can claim in areas such as:

  • Capital Gains Tax Relief for Traders 
  • Business Asset Rollover Relief 
  • Entrepreneurs’ Relief 
  • Relief for gifts of business assets and relief for loans to traders 

You are also entitled to plant and machinery capital allowances for items such as furniture, equipment, and fixtures as the profits count as earnings for pension purposes. A correctly supported claim for capital allowances can mean that a FHL will pay no tax on its rental profits for potentially 4- 8 years. 

We advise you to approach a specialist tax advisor to ensure you can make the most of your investment purchase. 

A woman and her two young girls are looking over the wooden balcony. One girl is leaning upward to see more, whilst the other is cuddled around the woman as she smiles at both of the girls.

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*The Away investment product is available on selected properties at selected resorts and exclusively to qualifying investors, terms and conditions apply.

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