Furnished Holiday Lettings

The tax treatment of Furnished Holiday Lettings (FHL) has been advantageous for many years. Provided that certain conditions are met, FHL are treated as a trade. This can be more preferable than the tax regime for normal let property in a number of specific areas, as the rules and reliefs for trades are often more generous.

In particular, FHL are treated as trades for the following purposes:

  • some capital gains tax reliefs, such as Entrepreneurs' Relief, business asset roll-over relief, relief for gifts of business assets, and relief for loans to traders;
  • relevant earnings when calculating the maximum relief due for an individual's pension contributions;
  • loss relief; and
  • capital allowances.

As you may remember, the rules were extended to properties within the EEA last year but the government announced that it intended to scrap the rules altogether from April 2010. It has now been confirmed that there will be no change to the existing tax rules for the current tax year.

However, changes are being considered from April 2011. Firstly, one of the existing rules is that, for holiday accommodation to qualify as FHL, the property must be available for letting for at least 140 days a year and actually let for at least 70 days. The potential change is that the number of days may be increased for both tests.

Secondly, FHL losses can currently be set against other income and it appears likely that these rules may be made more restrictive.

So, before April 2011 you may wish to review your FHL position to ensure all possible reliefs have been maximised.

Links: HMRC guidance HMRC consultation document

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