FHL Capital Allowances

Find out about how FHLs work for tax purposes in our tax tip.

FHL Capital Allowances

What is it?

Over the past few years, Airbnb has become an essential part of the holiday industry.

The way Airbnb works it that the property owner can rent out their property, or even just a room, on a short-term basis.

Many Airbnb letters are not aware of the tax issues around an Airbnb business model, as the tax rules can be complicated.

Furnished Holiday Lets

Furnished Holiday Lets (FHL) have a wider range of deductions available to them than normal lettings do.

HMRC views FHLs as trade rather than an investment, so the full interest on the mortgage can be offset against your income for tax purposes, as can council tax, utility bills and repair costs.

You may even be able to claim for capital allowances on the costs of furnishing the home, reducing your tax liability further.

Although you do have to pay Capital Gains Tax on the profits from selling such a property you don’t pay tax on the first £12,300.

FHLs are eligible for Entrepreneurs’ Relief, which can reduce the Capital Gains Tax to 10% after the £12,300 threshold.

If you are buying the property you want to make into an FHL with a partner then you can split the profits flexibly between both of you for tax purposes.

This means that if you are going to pay Capital Gains Tax then between the two of you there will be a £24,600 tax free threshold.

What counts as an FHL?

To make your Airbnb property qualify as an FHL you must meet the following conditions:

  • The property must be available to rent for 210 days (30 weeks) a year
  • you must let the property commercially as a holiday property for 105 days (15 weeks) a year

If the property is occupied for more than 31 days by the same person/people, then the total of all such stays must not be more than 155 days in total.

Rent a Room Relief

If you let all or part of your home when you are away, then the income up to £7,500 will be tax exempt.

This exemption applies per property, and not per person.

If the amount you receive goes above this total then you can claim the letting-related costs.