'Ask the Experts'
28 July 2010
I have a portfolio of rental properties some of which are furnished holiday lets; I am somewhat confused by where I stand with these properties and the current tax position. Can you clarify the rules for me? Justin
Dear Justin
In the 2009 Budget it was announced that the rules regarding Furnished Holiday Lets would be changed; with properties within the European Economic Area qualifying from 22 April 2009, rather than just UK properties. However from 6 April 2010 the advantageous Furnished Holiday Let rules were to be abolished altogether!
The changes remained in the Budget for 2010 and the initial Finance Bill for 2010; however they were then dropped when the General Election was announced to allow the Finance Bill to pass through Parliament quickly.
Therefore the tax rules and benefits relating to qualifying Furnished Holiday Lets remain unchanged for 2010-11.
However the position remains under review and in the Emergency Budget on 22 June 2010 it was announced that the Government will publish a consultation document over the summer about plans to change the tax treatment of Furnished Holiday Lets from April 2011.
The main points under review are to ensure that the rules apply equally to properties in the European Economic Area and the way in which loss relief is given for these properties. In addition the number of days that a qualifying property will have to be available for; actually let and let commercially will be reviewed.
The position should be a lot clearer in the autumn when draft legislation will be published, but it is likely that the eligibility thresholds may be changed and loss relief restricted.
The current rules and reliefs are as follows, for reference:
To qualify as a Furnished Holiday Let property:
- The business must be carried on commercially with a view to a profit; and
- The property must be available commercially to the public for at least 140 days per year; and
- It must be actually let to members of the public for at least 70 days in a tax year.
- Also the property must not be let for periods of longer-term occupation (more than 31 consecutive days) for more than 155 days during the year.
- Where an individual owns more than one property, the 70 day actually let condition can be averaged between the properties.
The main tax benefits for a property qualifying as a Furnished Holiday Let are:
- Trading losses can be set against other income in the year or previous year. (Other property income losses can only be carried forward to set against future property profits).
- Capital Allowances can be claimed on capital items purchased for the property such as furniture and appliances.
- Certain Capital Gains Tax reliefs, including business asset roll-over relief (deferring the gain against the cost of a new business asset), and Entrepreneurs’ Relief (reducing the effective rate of CGT to 10%).
- The property is a qualifying asset for Business Property Relief for Inheritance Tax purposes.
- Profits count as relevant earnings when calculating the maximum relief due for an individual’s pension contributions.
For more information on this or any other tax issues you have please feel free to contact Claire Avery Tax Manager on c.avery@griffins.co.uk. Or call our specialist Tax Team on 01635 265265.