Serviced Accommodation Guide

What is Serviced Accommodation or Furnished Holiday Letting?

Serviced accommodation (SA) is essentially providing accommodation for those that intend to use your space for a short period of time. Potential clients may include those working away from home for a certain period or those wishing to visit the area your accommodation is located. Also known as Furnished Holiday Lets (FHL) or self-catering accommodation, the length of stay typically is no longer than 31 days. The owner of a serviced accommodation unit would tend to offer their accommodation fully equipped for their clients. This means that not only providing furniture, such as beds, sofas, and wardrobes etc, but equip the kitchen with utensils, kitchen appliances and crockery ready for your guests.

What type of property is best used for Serviced Accommodation?

Anything that would be deemed habitable for a short period of time. Basically, anything could work. We are aware of tents being rented in peoples back gardens, to 10-bedroom mansions. We tend to look after self-contained units from Studio apartments to 5-bedroom houses. You could operate a house on a room basis like a guest house if you so choose. However, always make sure that you have the required permissions to operate your property this way.

What criteria must my property meet to be seen as an FHL?

For a property to be considered an FHL, the government requires the accommodation to meet the following criteria for any given tax year:

  • The property must be available to let as an FHL for a minimum of 210 days a year (you cannot count any days you use the accommodation yourself).
  • The property MUST be let commercially as an FHL to the public for a minimum of 105 days in a year (do not count any days you let the property to friends or family at zero or discounted rates or any lets that are longer than 31 days excluding unforeseen circumstances).
  • Should you own more than one property that you intended to rent as an FHL, and one or more of those properties were not able to meet the minimum 105 days, you are allowed to apply an occupancy average for all your properties. This is known as ‘Averaging election’.

You can find more information on the government website here – HS253 Furnished holiday lettings (2018).

Why would SA be better than a longer-term rental?

Owning an SA could have excellent benefits compared to standard Assured or Shorthold Tenancy agreements. The main advantage would be the potential increase in revenue. For example, a standard AST rented for £1,000.00 pcm = £12,000.00 per annum could achieve £28,000.00 per annum at 60% occupancy.

Other advantages included:

  • Capital allowances on an FHL, where you may be able to make a claim to HMRC for the cost of equipping and furnishing your serviced accommodation property.

You can find more information here on the Government website – Capital allowances and balancing charges (Self Assessment helpsheet HS252).

  • Mortgage interest relief - Unlike standard buy 2 let properties in the Private Rented Sector (PRS), properties that meet the FHL criteria are not subject to section 24. This means properties in the PRS are no longer able to offset their mortgage interest against their income. This does not affect FHL accommodation which is another benefit to potentially running your property as Serviced Accommodation.
  • Divide the profit of your FHL however you like with those that have a share within the property. A long-term rental would require the profits be split according to the ownership percentage. This is not the case with FHL properties, you can share the profits how you see fit.
  • Relevant earnings – FHL income is classed as relevant earnings. This allows you to make tax-advantaged pension contributions.
  • Capital Gains Tax (CGT) relief – upon selling your FHL property, you may be able to claim capital gains relief. These include Roll-over relief, Entrepreneur’s relief, and Hold-over relief.
  • No more council tax – If your FHL meets the government’s criteria, then your property will be subject to Business Rate property tax, instead of council tax. You then may be entitled to Small Business Rate Relief. This could be a relief up to 100% of your business rates.

There are many factors that determine the potential income a property could generate, while the example we have displayed is from a property we look after, this may not be the same for your accommodation.

Can we use the property for our friends and family?

Yes, of course. We only recommend that you don’t exceed more than 155 days per annum. This ensure that you meet the criteria the government has stipulated for FHL properties. We would also recommend that you inform us in advance if you intend to use the property during the peak season, usually 12 weeks in advance as these dates will get booked quickly.

Are you considering renting your property out as a Serviced Accommodation? Why don’t you get in touch with our team who will be able to assist you and give you some guidance on potential revenue?

David Stewart
Director