How To: get a potentially lucrative additional income through your second property

Written by Director, Huw Moseley:
Lots of the clients I work with are in a fortunate position to own a second property – and it presents an interesting field of accounting. Did you know, for example, Furnished Holiday Lets (FHLs) – quite apart from being a great way to win friends and influence people – are a potentially lucrative additional income?
In order to qualify as an FHL, your property must be, furnished, profit-making, and available to let for 210 days. (Find out more here via Sky Cottages >)
Skye Cottages (link above) have written a really comprehensive guide on this subject, but it’s quite a meaty read… so here are 5 highlights!

  1. For tax purposes, if you share the ownership of the FHL you can flexibly portion the profit between you however you decide.
  2. Any income you generate is classed as ‘relevant earnings’ so you can make tax-advantaged pension contributions.
  3. There’s no Council Tax to pay (because the FHL will be subject to Business Rate property tax – which you may be able to claim back through Small Business Rate Relief).
  4. Capital Gains Tax (CGT) relief may apply when it comes to selling your property.
  5. You can deduct the cost of decorating and kitting out your FHL from your pre-tax profits – so luxury standards really can be affordable.

Of course, there are always downsides and here are a couple to consider:

  1. You’ll need to get VAT registered if turnover from your FHL portfolio exceeds the threshold. (If, like our clients, you run a separate business and are a VAT registered individual, your FHL property income may also be subject to VAT.)
  2. If your FHL makes a loss, its carried forward and offset against future profits (ie. you cannot offset it against other income.)

If you have a second property – or you’re thinking of buying one – let us know and we will happily explore with you the most tax efficient and profitable way for you to rent it out. Simply get in touch…


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Huw Moseley