23rd July 2021Furnished Holiday Lets – Here is what you need to know

If you own and run a Furnished Holiday Let (“FHL”) now would be a good time to take stock of the key points and whether any of the below elections may assist you with the issues caused by Covid-19.

As with many tax regulations, it’s easy to be blinded by the detail and it is often hard to identify what is important. HW Fisher’s Tax Team share five key points that FHL owners should be aware of:

1          What is a FHL?

To be considered as a FHL the property must be commercially let, i.e. seeking to make a profit, it must be furnished and situated within the UK or EEA.

Further FHL Conditions:

1. The property must be available to let as a FHL for 210 days in a relevant 12 month period; and
2. You must let the property to the public for at least 105 days in a 12 month period.

Do note that longer term occupation (i.e. more than 31 days) where the property is in the same occupation, will be ignored.

2          Impact of Covid-19 and the Availability of Elections

It is likely that FHL owners may not have been able to meet the conditions set out above due to Covid-19.  There are two main elections that can assist to ensure your property continues to be considered a FHL.

1. If you let more than one property as a FHL, and a property doesn’t meet the letting conditions, you can elect to apply the letting condition on the average rate of occupancy for all FHLs.

For example if you have 2 FHLs and one has been let for 96 days in a 12 month period and the other has been let for 120 days, you can elect to average the rate of occupancy to be 108 days.  This way both properties would meet the letting conditions, rather than just one.

2. You may also be able to elect for a period of grace, where you genuinely intended to meet the letting conditions but were unable to.

If your property fails to meet the lettings conditions after 2 consecutive period of grace elections, it will no longer qualify as a FHL.

Do note that there are time limits to make the above elections; therefore, we suggest contacting your advisor within good time to meet any applicable deadline.

3          What are the tax advantages for FHLs?

• If a FHL owner has a loan taken out to purchase the property, the full amount of interest paid in respect of the loan would be deductible from rental income.
• Any profits from a FHL can be treated as earned income, which is important if you wish to make pension contributions.
• FHLs may qualify for certain capital gains tax reliefs, for example roll over relief, gift relief and business asset disposal relief.
• Capital allowances are available to FHLs.

4          Losses made in a FHL

• If your UK FHL business makes a loss you can set the loss against other UK FHL profits in the same or subsequent years.
• However, UK FHL losses can not be offset against profits from ordinary UK property income.
• Losses made by UK and EEA FHL businesses need to be kept separate and cannot be relieved against each other.

5          When does a property stop being a FHL?

• When the property is sold.
• When the letting conditions are not met, after considering the averaging and period of grace elections.
• The property is used for private occupation.

For more information or to discuss specific circumstances, please get in touch