Furnished holiday letting

Being a Bakewell Accountant based in the heart of the beautiful Peak District National Park a large proportion of my clients are involved in the business of furnished holiday letting (FHL). Careful consideration needs to be given to setting up your property business.

Historically there were clear advantages to operating a property as a FHL rather than as a residential let. However, these advantages were abolished from April 2025. This means no more mortgage interest deductions, capital allowances or access to business related Capital Gains Tax reliefs.

Limited companies can still deduct 100% of mortgage interest as a business expense. This is a major difference from personal ownership where interest relief is restricted to a 20% tax credit. Corporate ownership may be preferable if you are a higher rate taxpayer and want to shelter profits at lower corporation tax rates (19% to 25% as opposed to higher rate personal tax rates of 40% to 45%). This may be the best strategy if you plan to hold multiple properties under a single structure. It may also make sense if your plan is to extract dividends from the company after you have retired to supplement your pension income.

The VAT position on FHLs has not changed post April 2025. An owner must register for VAT where the rents from FHL (including turnover from an unregistered business) exceed £90,000 in a 12 month period.

If the FHL business also includes commercial and / or residential letting it will be necessary to follow the partial exemption rules whereby input VAT is only re-claimed if certain tests are met. This can be a tricky accounting exercise. I can advise you on this and the best tax options in running your property business.