In April 2017, the government introduced a new legislation tapering interest rate relief. This means that letting your property as a holiday home or an Airbnb, known as a Furnished Holiday Let (FHL), could create numerous taxation advantages.

The changes that HMRC introduced almost a year ago allow holiday property owners to make a greater net profit, so a lot of traditional Buy to Let (BTL) landlords have been forced to sell. Other well-informed landlords are buying up these properties and making them into holiday homes.

If you previously have thought about Buy To Let properties or property investment, here’s some reasons why you should consider Furnished Holiday Lets instead.

1. Furnished Holiday Let owners can offset all their interest costs.

This means that it would make your property more profitable for you per year. As under the current legislation rules as a traditional BTL landlord, all your interest payments and costs that you previously would deduct fully are now starting to taper off. This results in you paying a higher amount of tax. Holiday Home owners can fully offset their interest cost by contrast! If you own a FHL, the new regulations allow you to be assessed at £22,000 rather than just £8,000.

2. Your Revenue can be 60% higher.

This blog from CocoFi co-founder, Manish Shah, explores how you can make significantly more money by letting out your property on Airbnb as opposed to renting it long-term.

Shah explains that even though owning a Furnished Holiday Let requires more expenses, such as Airbnb fees, utility costs, property management fees, or general maintenance costs, the gross revenue per annum is actually a lot higher.

3. Your Net Profit won’t drop over time.

With these legislative changes, it is thought that over the four-year period that your net profit p.a. will decrease substantially over the years.

In Shah’s example, he claims that a traditional Buy to Let would earn about £14,616 over this period. A Furnished Holiday Let however, would make more than double, at £35,530. The graph on his blog shows the changes in income year after year.

4. Your FHL profits can contribute to your pension.

HMRC recognises that if you own a FHL, you are likely relying on the property’s profits as your main source of income. Therefore, profits from Furnished Holiday Lets can be categorised as “relevant earnings” for your pension contributions. This allows you to have more of an advantage on your pension savings from your short-term holiday let income.

5. You can proportion your profit splits.

If you qualify for a FHL, you do not have to split your profits equally between those who legally own your property, like with regular property lettings.

For example, if you and your spouse own 50% of the property respectively, you will each share 50% of the profits or losses. When it comes to your short-term holiday let, there is a chance of allocating profits in any proportion.

How can you qualify as a Furnished Holiday Let?

In order to benefit from all these favourable advantages, your property must meet certain criteria to qualify:

• Your property must be located in the European Economic Area
• It must be furnished (basic furniture for daily living)
• It needs to be let to the general public for a minimum of 105 days over a calendar year (January to December)
• It will need to be let on a commercial basis, meaning that it must be making a profit rather than simply letting to friends or family with basic or no rent
• It will need to be available for at least 210 days in a calendar year (January to December)

To view all the regulations of qualifying, view this list from HMRC.

The thought of owning an Airbnb property or holiday home can be daunting, with a lot more tasks and expenses, such as daily check-ins, and booking management to worry about than a traditional BTL and renting long-term.

Thankfully, property management service, Pass the Keys, focuses on short let and Airbnb properties and lets you relax as we manage all the work required to run your Airbnb, including optimising your occupancy and income. Pass the Keys gives property owners peace of mind, knowing that their empty properties are accommodating holiday makers, performing successfully, and are kept well-maintained while they are in our hands.

If you feel like making the most of the tax legislation by short-letting your property, check how much you could make with Pass the Keys, the UK’s leading Airbnb management company.