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Many of the recent changes in the taxation of buy to let rental businesses do not apply to property businesses that qualify as furnished holiday lettings (FHL).
In particular, the restriction on deductibility of finance costs that started to apply from 2016/17 does not apply to furnished holiday lettings. It may be worth considering investing in such properties to take advantage of a number of other generous tax breaks.
Furnished holiday letting businesses are treated like a trading business for many, but not all tax purposes.
Note that inheritance tax business property relief does not generally apply to the transfer of FHL property businesses.
There are strict rules for a property rental business to qualify as furnished holiday lettings. The most important conditions are:
For individual landlords, the 210-day and 105-day tests apply to the tax year or the first 12 months on commencement of the rental business.
If the 105-day test is not met it is possible to make a “pooling” or averaging election where several FHL properties are rented out in the tax year. You can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. There are separate elections or pools of UK and EEA properties.