Long stays in holiday lets

This factsheet considers the VAT impact of allowing longer term lets (more than 28 days) in your holiday property.

Value Added Tax

Income from holiday accommodation, is subject to VAT at the standard rate of 20%. This applies to holiday lettings that are advertised as being suitable for holiday or leisure purposes. In addition, accommodation in ‘hotels, inns, boarding houses or similar establishments’ is standard rated, as is the supply of chalets, tents and caravans and pitches for tents and caravans.

The reduced value rule for long stays

The reduced value rule is an easement that reduces the amount of VAT charged to guests who stay in ‘hotels, inns, boarding houses or similar establishments’ for stays lasting more than 28 consecutive days. It does not apply to long stays in other types of accommodation, such as holiday lets, although it can apply to supplies of serviced apartments.

How the reduced value rule works

From day 29 of the long stay, no VAT is charged on the accommodation element of the fee. This means that any element of the fee that relates to food, drink and other services remains subject to VAT. Also, after charges for food and drink are removed, 20% of the remainder is deemed to be in respect of service charges and is also subject to VAT. In cases where the customer has no food or drink, 20% of the selling price is subject to VAT at the standard rate, giving an effective rate of 4% (20% of 20%).

The portion of the fee that is not subject to VAT is not VAT-exempt; it is deemed to be taxable for the purposes of reclaiming input tax. Input tax cannot be reclaimed if it were incurred in respect of exempt supplies, so this is an important distinction.

Is the property a hotel, inn, boarding house or similar establishment?

The answer to the above question is not always clear-cut. We can look at a 2024 First-Tier Tribunal case for clarification: Realreed Ltd v HMRC.

Whilst this case did not consider whether or not a businesses was eligible to use the reduced value rule, it examined the definition of ‘similar establishment’, which “includes premises in which there is provided furnished sleeping accommodation whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers”.

It was found that Realreed Ltd’s serviced apartments were “ similar establishments”, in that the average length of a stay was less than a fortnight, so guests could be considered ‘visitors or travellers’ as they were not making the apartment their home.

Also, it was found that Realreed provided services that put it in competition with an hotel (daily maid service, linen changing, cleaning, residents bar and concierge).

Further information

Information on the reduced value rule can be found here: https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093

To read the Realreed Ltd decision, see: https://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j12921/TC%2009013.pdf