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Furnished Holiday Lets FHLs - more time to plan

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Julie Butler - Expert Author

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Furnished Holiday Lets (FHLs) – delay in the consultation document - more time to plan

2 March 2011

With all the recent changes to the FHL rules it is difficult to become too excited about the changes to the proposed consultation document published in July 2010. There are, however, tax planning opportunities arising from these changes.

The proposals:

  • Increasing the period for which the property must actually be let from 70 to 105 days – effective from 6 April 2012.
  • Increasing the period for which a property must be available for holiday lettings from 140 to 210 days a year – effective from 6 April 2012.
  • Withdrawing the ability to set holiday letting losses against general income, and to claim terminal loss relief – effective from 6 April 2011.
  • Treating a taxpayer’s United Kingdom and EEA lettings as two separate trades, so that losses from one cannot be set against profits from the other.

The July proposal, to introduce special capital allowance rules for businesses which qualify as holiday lettings in some years but not others, has been abandoned. However, in view of the ‘two year run-on’, alternating between qualifying and not qualifying is likely to be much less of a problem.

The complexities of averaging must be considered in relation to the changes. Where a taxpayer owns two or more such properties, an averaging claim (section 326, Income Tax (Trading and Other Income) Act 2005) can be made. An averaging claim may allow a property to count as ‘furnished holiday accommodation’ even though not let for 70 days in the year. The existing rule, which allows someone who owns two or more properties to ‘average’ their occupancy rates, will remain in force, but because the United Kingdom and EEA lettings will count as two separate businesses, there will (from April 2011) have to be a separate averaging calculation for each.

If a business (that is to say, a United Kingdom holiday letting business or an EEA holiday letting business) satisfies the occupancy test in one year, it may elect to be treated as also satisfying it for the following two years. This will apply from April 2012. However, it will not be possible to claim this ‘bought forward’ qualification for a year in which averaging relief is claimed for the same business.

With the current rules continuing to the end of the tax years set out above, there is still scope and opportunity for individuals to ensure that their furnished property either in the UK or EEA meet the existing qualifying conditions thereby obtaining the beneficial treatment under the current rules. Likewise a total review of qualification, averaging and capital allowances needs to take place as part of the tax planning strategy. With the capital gains tax advantages of rollover relief, holdover relief and entrepreneurs’ relief there is time to either use these reliefs or protect the availability of the reliefs moving forward.

It must be remembered that the Chancellor of the Exchequer has stated that he will make his spring Budget Statement on Wednesday 23 March 2011 and publish the Finance Bill 2011 on Thursday 31 March 2011. However, there could be challenges to the Bill before it becomes an Act…the saga of “in, out, shake it all about” with regard to FHL tax rules might continue some more…………


About the Author

Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification ISBN: 0754517691 (1st edition) and ISBN: 0754522180 (2nd edition) and Equine Tax Planning ISBN: 0406966540.  The third edition of Tax Planning For Farm and Land Diversification will be published shortly.



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Article Published/Sorted/Amended on Scopulus 2011-07-01 09:48:36 in Tax Articles

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