Furnished Holiday Lettings (FHLs) Tax Relief - Do I Qualify?

Gary Green
Gary Green
December 15, 2021

Furnished holiday letting tax relief offers attractive financial benefits if property owners stick to some strict rules.

You don’t have to have a property beside the sea or close to a beauty spot to benefit as city breaks are just as popular with holidaymakers.

Staycations are all the rage with bookings booming as travel abroad is limited by the impact of coronavirus.

As a bonus, you can also enjoy some time off in the property.

This article explains the tax implications of owning a second home and how you can qualify for furnished holiday letting tax relief.

What is furnished holiday let tax relief?

Furnished holiday lettings come with tax breaks that are unavailable for other rented homes.

If a property qualifies as a furnished holiday let, the owners can claim:

  • Capital Gains Tax rollover relief, holdover relief and business asset disposal relief (formerly entrepreneur’s relief) which reduce the tax due on the sale of the property
  • Capital allowances on furniture, fixtures and fittings
  • Small Business Rate Relief which can mean many furnished holiday lets pay no rates at all
  • Full mortgage interest relief
  • Split profits to reduce taxable income by ownership or actual work done to manage the property
  • Carry forward of holiday let losses against future profits in the business but not against other income

On top of these, furnished holiday let profits count as earnings when working out pension contributions.

How property qualifies as a furnished holiday let

What makes a property a furnished holiday let comes down to meeting five strict conditions. Properties must comply with the tests for a complete tax year, which runs from April 6 to the following April 5.

If the property is let for the first time, the test applies to the 12 months after the letting started. If the property is withdrawn as a holiday let, the tests apply for the 12 months up to the date the letting ended.

The tests are:


The property must be in the UK or European Economic Area (EEA), which covers countries in the European Union plus Iceland, Norway and Liechtenstein.


Furnished means the property is ready to live in when a holidaymaker arrives with just their clothes and personal possessions.


The property is not a furnished holiday let if rented out for 31 days in a row for a total of more than 155 days in a tax year.


The property should be available for commercial let for at least 210 days in a tax year.


The property should let at commercial rates for at least 105 days in a tax year.

Lets of 31 days or more are not included unless the visitor stays for an unforeseen reason, like falling ill or having to stay longer due to travel delays.

Two options apply for properties that just fail to meet the furnished holiday let conditions:

Grace periods

If you have one holiday let but fell short of meeting the five conditions, you can make a period of grace election providing your business passes the occupation and availability tests.

To make a successful election, you must show you had intended to let the property, but your plans were thwarted.

Reasons supporting an election could include marketing providing fewer customers than other years or lettings were cancelled due to unforeseen circumstances, such as the coronavirus lockdown.

You can opt for the period of grace election the year after the property qualified as a furnished holiday let by passing the letting test.

A second election is allowed the following year if the letting test is failed again if you made an election the year before.

The property stops qualifying as a furnished holiday let after failing the tests for four years and two period of grace elections in a row.


Averaging is for property owners with several furnished holiday lets when one or more fails the letting test.

This HMRC example shows how averaging works:

Emma lets four UK holiday cottages in 2019-2020 for the following number of days:

CottageLetting days

If Emma uses averaging, all the cottages meet the letting condition (421 days/4 = 105).

Without averaging, Cottage 4 does not qualify.

You may average letting days for properties in the same furnished holiday letting business.

As UK and EEA furnished holiday letting businesses are separate, you cannot average across properties held in each.

Using grace periods and averaging together

Owners with two or more furnished holiday lets can combine the period of grace and averaging elections to show a property remains a furnished holiday let.

This HMRC example shows how:

Emma lets four cottages as furnished holiday lettings. In some years Cottage 3 does not meet the letting condition.

Averaging in Year 2 and period of grace elections in Year 3 and 4 to make sure that Cottage 3 qualifies for the whole period.

CottageYear 1Year 2Year 3Year 4Year 5

Making a grace or averaging election

Make the election in one of two ways:

  • Separately within a year of the January 31 following the tax year end you are making the election for, for example, an election for the 2020-21 tax year should be reported by January 31, 2022.

Holiday let shuts for part of year

If your furnished holiday let closes for part of the year, you can still claim the running costs like mortgage interest, utilities and insurance for the whole year providing you do not use the property.

Should you, family or friends enjoy time at the property, any running costs should be apportioned accordingly.

Furnished holiday letting business stops

HMRC views furnished holiday lets as a business, while buy-to-lets are treated as investments.

The key that unlocks furnished holiday let tax breaks is the word ‘commercial’.

A commercial let applies to time the property is let to the public at a market rate.

Days when the owner stays at the property are not counted as days the home is available to let, nor are days when friends and family use the property for free or at a discounted rate.

The property stops qualifying as a furnished holiday let when:

  • Sold
  • Switched to permanent private use
  • Fails to pass the letting test even with averaging and grace period elections

When the property is no longer a furnished holiday let, any special tax breaks stop.

Find out more about furnished holiday let tax reliefs

HMRC publishes several help sheets that explain furnished holiday let tax relief in more detail:

If you have any questions about the issues raised in this article, we at Key Business Consultants can help. Get in touch with us today or call us directly on 020 3728 2848.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
Contact Form Demo (#1)
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
June 20, 2024
An Overview Of The DDS (Digital Disclosure Service)

If you want to disclose gains or income that you have not reported to HMRC, you...

June 13, 2024
Credit Card Sales Campaign

Originally set up in 2014, HMRC’s Credit Card Sales Campaign was aimed at individuals and businesses...

June 6, 2024
Advice Regarding Tax Litigation

The term “litigation” is used to refer to a tax dispute’s resolution when a statutory appeal...

May 30, 2024
Let Property Campaign

HMRC has looked closely into tax compliance among UK property investors and UK landlords since 2013...

May 23, 2024
What Is A Residence & Domicile Enquiry?

Questions regarding domicile and residence have significant effects on taxes that are payable and due in...

May 16, 2024
Company Tax Investigations By HMRC

If HMRC decides to carry out an investigation into a company’s tax returns, it is important...

May 9, 2024
A Guide To The WDF (Worldwide Disclosure Facility)

More than a hundred countries around the world have made a commitment to exchange information with...

May 2, 2024
Contractual Disclosure Facility And HMRC COP9

Any tax investigation that HMRC carries out can be regarded as serious. However, if you become...

April 25, 2024
A Guide To Managed Service Companies, Personal Services Companies And IR35

Usually, people work as either a self-employed individual or an employee for a business. Nevertheless, there...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
Newsletter Form (#2)
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2022 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram