Updated 6 April 2022

There are special tax rules for rental income from properties that qualify as furnished holiday lettings (FHLs).

If you let properties that qualify as FHLs:

  • you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for loans to traders)
  • you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
  • the profits count as earnings for pension purposes

To benefit from these rules, you need to work out the profit or loss from your FHLs separately from any other rental business.

Accommodation that qualifies as a FHL

To qualify as a FHL your property must be:

  • in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway
  • furnished – there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture

The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but did not make a profit, the letting will still be treated as commercial.

All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

Occupancy conditions

Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions.

How to use the occupancy conditions

For a continuing let, apply the tests to the tax year – that’s from 6 April one year, to 5 April the next year.

For a new let, apply the tests to the first 12 months from when the letting began.

When your letting stops, apply the tests to the 12 months up to when the letting finished.

The pattern of occupation condition

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be a FHL for that year.

The availability condition

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

For the tax year 2020 to 2021 the availability condition is satisfied if the person has made the property available for letting as furnished holiday accommodation for at least 210 days in the year even if coronavirus (COVID-19) restrictions prevented the property from being used.

Do not count any days when you’re staying in the property. HMRC does not consider the property to be available for letting while you’re staying there.

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either:

  • falls ill or has an accident, and cannot leave on time
  • has to extend their holiday due to a delayed flight

If you do not let your property for at least 105 days, you have 2 options (known as elections) that can help you reach the occupancy threshold:

  • the averaging election – if you’ve more than one property
  • a period of grace election – if your property reaches the occupancy threshold in some years but not in others

Averaging election

If you let more than one property as a FHL, and one or more of these properties does not meet the letting condition of 105 days, you can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. This is called an averaging election.


Emma lets 4 UK holiday cottages in 2021 to 2022 for the following number of days:

CottageNumber of days
Cottage 1120 days
Cottage 2125 days
Cottage 3112 days
Cottage 464 days
Total421 days

If Emma uses averaging, all 4 cottages will meet the letting condition (421 days divided by 4 = 105). Without averaging, cottage 4 would not qualify.

You can only average across properties in a single FHL business.

You cannot mix UK and EEA FHL properties together.

Time limit

You make an averaging election up to one year after 31 January following the end of the tax year. For example, if you’re filling in your tax return for 2021 to 2022, you must make your election by 31 January 2024.

Period of grace election

You may genuinely intend to meet the letting condition, but were unable to. If this happens, you may be able to make a period of grace election that allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions were met.

To make an election, you must be able to show that you had a genuine intention to let the property in the year. For example, where you have marketed a property to the same or a greater level than in successful years, or where the lettings are cancelled due to unforeseen circumstances, including extreme adverse weather.

You can make an election where the property met the letting condition in the year before the first year you wish to make a period of grace election (either on its own or because of an averaging election). If your property again does not meet the letting condition in the following year, you can make a second period of grace election (as long as you made an election in the previous year).

If your property does not reach the threshold by the fourth year, after 2 consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.

For the tax year 2020-21 unforeseen circumstances include where the letting condition is not met due to Covid-19 measures such as enforced closure due to lockdown or travel ban.

How to make an election

You can either:

  • use your Self Assessment ‘UK Property’ pages
  • make it separately, up to one year after 31 January following the end of the tax year – for example, if you’re filling in your tax return for 2021 to 2022 you must make your election by 31 January 2024

Using both averaging and period of grace

If you have more than one property, you can use both averaging and period of grace elections to make sure that a property continues to qualify as a FHL.


Emma has 4 cottages that she lets as furnished holiday lettings. In some years cottage 3 does not meet the letting condition.

Year 1Year 2Year 3Year 4Year 5
Cottage 1QualifiesQualifiesQualifiesQualifiesQualifies
Cottage 2QualifiesQualifiesQualifiesQualifiesQualifies
Cottage 3QualifiesAveragingPeriod of gracePeriod of graceQualifies
Cottage 4QualifiesQualifiesQualifiesQualifiesQualifies

Emma uses averaging in year 2 and period of grace in year 3 and 4 to make sure that cottage 3 qualifies for the whole period.

Property closed for part of the year or only part of the property let

If your property is only used as a FHL and is closed for part of the year because there are no customers, you can deduct all the expenses, such as insurance and loan interest, for the whole year, provided you do not live in the property.

If you let part of the property as a FHL, or where you use the property privately for part of the year, you need to apportion your receipts and expenses on a reasonable basis.

Property stops being a FHL

Your property will no longer be a FHL if the:

  • property is:
    • sold
    • used for private occupation
  • letting condition is not met even with the averaging and period of grace elections

If your property does not qualify as a FHL or stops being a qualifying FHL, the special tax treatment will no longer apply. You’ll need to work out any balancing allowance or balancing charge for capital allowances, read Helpsheet 252 Capital allowances and balancing charges and if any Capital Gains Tax reliefs will be affected, read:

Allowable expenses

In addition to capital allowances, there are also the usual allowable expenses that can be offset against profits to reduce the amount of tax due.

Capital expenditure

What is it:

  • A capital expenditure is a cost related to the property in its entirety and includes expenses designed to add value, such as adding an extension, en-suite, conservatory or a log burner.

When to claim:

  • Capital expenditures can be claimed when selling the property to offset capital gains tax.

Examples of FHL capital expenditure

Capital expenditureDescription
Property purchasing expendituresIncluding solicitors costs and survey costs from when the property was initially purchased.
Stamp Duty Land TaxFrom when the property was initially purchased.
Property enhancementValue added to the property, such as building an extension, adding an en-suite or reconfiguring the layout. For FHLs, this could also include luxury improvements such as a log burner or hot tub.
Estate agent feesFrom selling the property.

Other expenditure

You can continue to claim the usual day-to-day costs associated with managing and running the FHL as you do with normal investment properties.

What is it:

  • Revenue expenditure is the costs incurred for the day-to-day running of the furnished holiday let business. They can be deducted from the gross profits to reduce your taxable profit.

When to claim:

  • At the end of the tax year on your self-assessment tax return or company accounts.

Examples of FHL other expenditure

Mortgage interest repaymentsThe full mortgage interest can be claimed for furnished holiday lets.
MaintenanceCosts of maintaining the holiday let, such as cleaning and gardening.
Holiday let business management costsIncluding holiday let insurance, accountancy fees, advertising, online platform fees, membership charges of landlord/property associations, and stationery.
Travel, hotel accommodation, food & drinkWhilst away on business/visiting properties. Mileage is 45p per mile for the first 10,000 miles per tax year and 25p per mile for all miles thereafter in a car. These can only be claimed when visiting the holiday let on business, not for private travel.
Legal feesIncluding those associated with mortgage/re-mortgage arrangement costs. Also includes extending leases of up to 50 years, preparing contracts and preparing deeds of trust.
Computer & mobile phone costsIf an expense, such as a mobile phone, laptop or tablet, is not used 100% of the time for running the property business, a proportion of the cost can be claimed.
Utility & Council tax costsUtilities (water, electric and gas) and council tax can be claimed if the property is empty.

What you can do with losses

If your UK FHL business makes a loss, you can set the loss against your UK FHL profits of later years. Similarly, if your EEA FHL business makes a loss, you can set the loss against your EEA FHL profits of later years. You cannot set the losses of one FHL business against the profits of the other if you’ve a UK and an EEA business.

Updated 6 April 2022


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