Another type of property investment to consider is furnished holiday letting (FHL). This form of letting is short holiday lettings as opposed to letting for the residential market. There is a favourable tax regime for furnished holiday letting accommodation. And the rules for allowable expenditure are more generous too. It includes qualifying property located not only in the UK, but anywhere in the European Economic Area (EEA). However, certain conditions have to be met in order to qualify for FHL treatment. These conditions include the property being available for letting for at least 210 days in each tax year, and being actually let for 105 days. It will be possible to make an election to keep the property as qualifying for up to two years even though the condition may not be satisfied in those years. This is allowed if there is a genuine intention to meet the actual letting requirement. This is particularly important to preserve the special CGT treatment of any gain as qualifying for the lower CGT rate of 10% where the conditions for Entrepreneurs’ Relief are satisfied. Any losses arising in an FHL business are not allowed to be set against other income of the taxpayer. These losses can only be offset against profits of the same or future years in each relevant sector.
Another advantage is that you will be able to take a holiday in your own property, or make it available some of the time to your family or friends. If you do that, then care would need to be taken to adjust the level of expenses claimed to reflect this private use.
Holiday letting will usually have higher agent’s fees, advertising costs, and maintenance fees (e.g. more regular cleaning).
You could find yourself spending a lot of time sorting out problems, as owning a holiday property may be more time consuming than you think.