Which Cottage News

The Chancellor George Osbourne has confirmed changes to the rules regarding Furnished Holiday Lets (FHL) in his 2011 budget. The announcement confirms proposals previously announced, primarily:

From 5 April 2011:
  • Losses made on a holiday let can only be offset against income made on that same holiday let. The previous rules stated that losses could be offset against general income.
  • FHL in both the UK and EEA will qualify (this is current practice but not legislation).
  • Losses made in a qualifying FHL business either in the UK or EEA may only be set against income from the same FHL business.
From 5 April 2012:
  • A property must be available to let for no less than 210 days a year. The current minimum requirement is 140 days a year. This will disqualify many summer holiday lets that take a six month let in the winter.
  • The property must be let for 105 days in the year. The current minimum letting period is 70 days.
  • There will be a ‘period of grace’ to allow businesses that don’t continue to meet the ‘actually let’ test for 1 or 2 years to elect to continue to qualify throughout that period, providing that there was genuine intention to meet the condition.
It is estimated the changes will affect 65,000 tax payers. The major disadvantage for most owners will be the inability to use losses from the FHL against other income.

Those owners who will no longer qualify as a FHL under the new minimum letting periods will lose the generous Capital Gains Tax reliefs available on the sale or gift of a property. It is unclear until the 2011 Finance Act is in place, but there may be an opportunity for some owners struggling to meet the 105 letting days to claim the Capital Gains Tax reliefs during the 2 years ‘period of grace’.

In summary it is not all bad news with tax planning opportunities still available, particularly on purchase or sale of a property.

For further information or advice please contact Andy Ritchie – Partner at Campbell Dallas by phone on 01738 441 888, or email

andrew.ritchie@campbelldallas.co.uk

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Responses to “Furnished Holiday Letting Rules Confirmed”

  1. How can an owner prove ‘genuine intention’ to let for more than the minimum period.
    The VOA are already trying to change properties from business rates to domestic rates based on last years actual lettings, this retrospective rating does not take ‘intent’ into consideration.

  2. Thanks for the post – it’s great to see someone break this information down. Is the 2011 Finance Act in place and, if so, has it affected much in terms of what an owner can claim?

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