Allowable expenses for buy to lets & furnished holiday lets

Buying a property to let can be a great investment. As well as receiving a steady stream of income, buy-to lets can provide landlords a number of tax benefits. 

These vary depending on the type of let you choose, with different rules for properties that are rented out to holidaymakers. In this blog, we’ll take a look at the key differences so that you can make the most of your investment. 

Buy to let or furnished holiday let?

A standard buy-to-let arrangement means that your property is occupied by one or more tenants as their main residence. They will usually sign a formal agreement called an assured shorthold tenancy (AST), allowing you to set a monthly rent, which you can review periodically. 

An AST also guarantees certain rights to your tenants, including a well-kept property and protection from eviction. 

Another option is a furnished holiday let (FHL). This is a short-term let that will be occupied by many tenants throughout the year, usually as a holiday property. For a property to be considered an FHL, it has to meet several criteria:

• it must be furnished to a liveable standard, and visitors must be allowed to use the furniture
• it must be available to let for at least 210 days a year
• it must be let for at least 105 days a year, not counting reduced or free lets to family and friends
• the combined length of lettings that exceed 31 days can’t be more than 155 days a year.

What expenses can I claim on a buy to let?

Like any source of self-employed income, you need to declare revenue from buy-to-let properties on your tax return. However, there are certain allowable expenses that may reduce your total taxable income. 

For standard buy-to-let properties, these include:

• council tax, electricity and water rates
• fees for letting agents and accountants
• landlord insurance
• advertising costs
• the replacement of domestic items on a like for like basis
• wages for gardeners and cleaners (but only if these services are mentioned in the rental agreement).

All of these allowable expenses apply to FHLs too, but that’s only part of the story. Unlike other buy-to-lets, an FHL is classed as a trading business rather than an investment. This means that you can also claim capital allowances. 

What are capital allowances?

Capital allowances allow taxpayers to offset the cost of items that fall under the category of ‘plant and machinery’. These are usually large one-off purchases of equipment that are used exclusively for business purposes. 

The cost of these items can be written off as part of your annual investment allowance, which is £1 million until 2023. The cost of qualifying purchases up to this threshold can be deducted from your profits as part of your self-assessment. 

Common examples of plant and machinery for FHLs include:

• furniture
• white goods
• curtains and bedding
• carpets 
• property repair and replacement
• plumbing
• heating and electrics. 

Are there any other benefits?

Because an FHL is classed as a business, it provides several other financial benefits:

• FHL profits are considered relevant earnings for pension contribution purposes, which can help you build a pension pot tax efficiently.
• You may be able to claim business asset disposal relief when you sell the property, which can help with capital gains tax.
• Married couples can split FHL profits between them however they wish, regardless of their respective ownership stakes. 
• FHLs in some parts of the country are eligible for Small Business Rate Relief, which reduces your council tax bill to zero.

Whatever your situation, it’s always sensible to optimise your tax position. We have years of experience in this area, and we’re always happy to offer advice. 

Making sure you comply precisely with the rules can be complicated, so give us a call, or e-mail us to find out more.