Many Airbnb lets are used as holiday accommodation. From a tax perspective, furnished holiday lettings enjoy some tax advantages over other lets for example capital gains tax reliefs including business asset disposal relief (previously entrepreneurs’ relief), plant and machinery capital allowances if the cash basis is not used and profits will count as earnings for pension purposes.
Simply letting a property as furnished holiday accommodation is not in itself sufficient to qualify for the furnished holiday letting (FHL) treatment.
FHL treatment is only available to properties which are in the UK or the EEA and which are let furnished. For an Airbnb let to benefit from the additional tax advantages the following conditions must be met:
You will need to maintain detailed records of when the property is available to let and when it is actually let. There are three occupancy conditions which must be met for a property to be treated as a FHL.
Condition 1 – the pattern of occupancy condition
This condition is met if the total of all longer term lettings exceeding 31 days in the tax year is 155 days or less. The nature of holiday letting is multiple short lets rather than longer lets and this condition seeks to recognise this.
Condition 2 – the availability condition
The accommodation must be available for letting for at least 210 days in the tax year. Days where the owner stays in the property do not count as days when the property is available for letting.
Condition 3 – the letting condition
This is met if the property is let commercially as furnished accommodation to the public for at least 105 days in the tax year. Only commercial lets count towards this total – any days when the property is let to family or friends at a reduced rate or where they are allowed to use the property for free are ignored.
Longer term lets of more than 31 days are also ignored (unless a let which was supposed to be less than 31 days is extended due to unforeseen circumstances, such as a delayed flight or the holidaymaker becoming ill).
If a person has more than one property let as holiday accommodation (whether via Airbnb or similar or otherwise), an averaging election can be made where the letting condition of 105 days is not met. As long as the average let across all properties is at least 105 days in the tax year, the condition is treated as met. Thus, if a person has three holiday properties which were let commercially for periods of 31 days or less for at least 315 (3 x 105) days in the year, the average let would pass the test.
Period of grace election
A second election, a period of grace election, can be made if the landlord genuinely intended to meet the letting condition but was unable to do so, as long as the condition was met in the previous tax year. This will allow the property to continue to be treated as a FHL. If the condition is not met the following year, a second period of grace election can be made. However, if the condition is not met in the fourth year after two consecutive period of grace elections, the property will no longer qualify as a FHL.