Summary
Since April 2011
- Loss relief may now only be offset against income from the same Furnished Holiday Lettings (FHL) business. No longer can losses be set off against other income for the tax year.
From April 2012
- To qualify as a FHL in a year, a property must be available to let for at least 210 days (currently 140 days) and actually let for 105 days (currently 70 days).
Key benefit retained
- Capital gain relief’s are still available for a FHL, in particular Entrepreneurs’ Relief. Using this relief, the gain on the eventual sale of the property would currently only be taxed at 10% as apposed to 28% for a higher rate tax payer.
Detail
A FHL business is treated as a ‘trade’ for certain purposes if it meets a number of conditions. Trading treatment is more beneficial than property business treatment.
Before April 2011, furnished holiday accommodation was treated as a trade for the following purposes:
- capital allowances;
- loss relief;
- certain capital gains reliefs (including business asset roll-over relief, entrepreneurs’ relief, relief for gifts of business assets, relief for loans to traders and exemptions for disposals of shares by companies with a substantial shareholding); and
- relevant UK earnings when calculating the maximum relief due for an individual’s pension contributions.
To qualify for this tax treatment, the following conditions had to be met:
- the property must be situated in the UK (or the EEA – this is not in statute);
- the business must be carried on commercially, and with a view to a profit;
- the total periods of “longer term occupation” must not exceed 155 days during the relevant period (normally the tax year). A period of “longer term occupation” is a letting to the same person for longer than 31 continuous days;
- the property must be available for commercial letting as holiday accommodation to the public for at least 140 days during the relevant period; and
- the property must be commercially let as holiday ac commodation to members of the public for at least 70 days during the relevant period.
The law was changed by the Finance Bill 2011 so that:
- FHL in both the UK and EEA will be eligible as qualifying FHL within the (revised) special tax rules;
- the minimum period over which a qualifying property must be available for letting to the public in the relevant period is increased from 140 days to 210 days in a year with effect from April 2012;
- the minimum period over which a qualifying property is actually let to the public in the relevant period is increased from 70 days to 105 days in a year with effect from April 2012;
- losses made in a qualifying UK or EEA furnished holiday lettings business may only be set against income from the same UK or EEA furnished holiday lettings business; and
- a “period of grace” will be introduced to allow businesses that don’t continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout that period.
