Furnished Holiday Lettings

Does your holiday home qualify as a Furnished Holiday Let (FHL) property? And if it does, what are the tax advantages?

Does your property qualify?

From April 2012 the following conditions apply:

  1. The property must be situated in the UK or EEA.
  2. The property must be available for commercial letting as holiday accommodation for at least 210 days per annum.
  3. The property must be let on a commercial basis for at least 105 days per annum.
  4. The property must not be let for periods of longer term letting. Accordingly, for 7 months of the year the property must not be in the same occupation for more than 31 consecutive days and must not exceed more than 155 days in a tax year.
  5. Periods of longer term letting do not count towards 3 above.

The periods to which you need to apply these tests are:

  • For a continuing let, the tax year.
  • For a new let, assuming that property did not qualify as a FHL in the previous year, apply tests to first twelve months of letting.
  • When letting ceases apply tests to last twelve months of letting.

There are complex rules that allow you to average the occupancy figures where you have more than one property in your FHL business. All of your UK FHL properties form a single trade for tax purposes. Any EEA properties form a separate trade. So you cannot average UK and EEA numbers. This averaging process can be useful where you have one or more properties that do not qualify and others that more than qualify for FHL status.

If you pass the test in 3 above for one year but fail it for the next 1 or 2 years, then you may be able to elect for those years to be treated as qualifying.

What are the tax advantages?

As your FHL business is considered to be a trade you will be able to avail yourself of the following reliefs that would not be available to non-FHL property letting businesses.

  • You can claim capital allowances on the purchase of furniture, white goods and other qualifying expenditure.
  • You may qualify for certain Capital Gains Tax reliefs including Entrepreneurs’ Relief, Business Asset Rollover Relief and relief for gifts and similar transactions.
  • FHL profits count as earnings for UK pension relief.

Beware of losses though, as these can only be carried forward against future FHL profits.

If you would like to see if your property holding(s) qualify for these important tax advantages, please contact us and we will help you work through the necessary calculations.

Furnished Holiday Lettings

HMRC are presently consulting with interested parties with the intention of changing the rules for the tax treatment of FHL property from April 2011.

We thought readers would be interested in the specific proposals being discussed:

1.Currently, a property must be available for commercial letting to the public for 140 days and be let for at least 70 days. The intention is to extend these periods to 210 days and 105 days respectively.
2.Currently, losses created by the letting of FHL property are available to set off against other income of the same tax year. It is now possible that this will be restricted from April 2011 such that you could only carry losses forwards to set off against future FHL profits.
3.Currently, if you make a claim for capital allowances by concession you are allowed to claim even in years when FHL status is denied. From April 2011 if a property does not qualify a claim for capital allowances will be denied.
Planning opportunity

For those of you who have qualifying FHL property in the UK or EC there is a planning opportunity between now and April 2011 that you should consider.

In particular:

1.If you are considering a significant refurbishment, new furniture, kitchen etc, that will qualify for capital allowances in 2010-11, you may be advised to quantify the tax advantage of doing so. The current Annual Investment Allowance is ÂŁ100,000.
2.If you made a tax loss as a result of a claim for capital allowances, you may be able to set the loss against other income and recover tax already paid.

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