Furnished Holiday Lettings

The preferential tax status for Furnished Holiday Lettings (FHL) has been enjoyed for many years by taxpayers who have been involved in the “commercial letting of furnished holiday accommodation” in the UK, and in recent years by taxpayers with holiday accommodation elsewhere in the European Economic Area (EEA).The letting of accommodation is commercial if the accommodation is let on a commercial basis with a view to realising profits.  HM Revenue & Customs would expect the business to make a profit within five years from the date of commencement of FHL activities, although this may be extended in exceptional circumstances.The current rules are to be changed over the next year with some changes being implemented from April 2011 and others from April 2012.The following table details the current and proposed rules in respect of accommodation being “qualifying holiday accommodation”:

	Current	From April 2012
Number of days property has to be available for commercial letting to the public generally in the 12 month period	at least 140	at least 210
Number of days property actually let for in the 12 month period - not including any lettings that are longer than 31 consecutive days (longer-term occupation)	at least 70	at least 105
Number of days relating to longer-term occupation allowed	up to 155	up to 155
Properties situated within	the EEA (by retrospective extension on 22 April 2009)	the EEA (by inclusion in the legislation)

Where two or more properties are let, an election may be made for averaging.  If a property qualifies and then fails to qualify only because of the actual number of let days, it may be possible to continue to qualify if the failure is for no more than two consecutive years by making an election.  These rules are, complex and may only apply in specific situations so please speak to your usual Beavis Morgan contact or one of the tax partners if you would like more information regarding these. Currently the taxpayer effectively has a FHL business, which can be made up of multiple properties.  This is treated as a trade for the following purposes:• relief for a trading loss, therefore, a loss in a tax year can be offset against other income of the year and or the previous year • relevant UK earnings in respect of pension contributions • availability of capital gains tax business reliefs i.e. entrepreneur’s relief, rollover relief and gift relief • landlords energy savings relief • qualifying activity for the purposes of capital allowances on plant and machineryFrom April 2011 there are the following changes to the above treatment:• loss relief is restricted to offset against profits from the same FHL business (see below) • all UK FHL properties and all EEA FHL properties are treated as a separate single businessTo find out more about how we can help please speak to Joanne Heartfield or your Beavis Morgan Partner.Documentation:

• Investing for children and grandchildren
• Capital Allowances
• Furnished Holiday Lettings
• A Fair Exchange?
• Proposed general rules on residence status for UK tax purposes
• Working Tax Credit and Child Tax Credit