Furnished Holiday Lettings Print
There are various conditions which must be satisfied for the lettings to qualify for the beneficial treatment.
The accommodation must be:
- Situated in the UK or any other EEA territory;
- Let on a commercial basis (i.e. taking one year with another it is let with a view to making a profit);
- Available for letting to the public for at least 210 days in any tax year, or in the case of a newly acquired property, the 12 months from the date the letting commenced. For the year of cessation the 12 month period ends with the date the letting ceases;
- Actually let out for at least 105 days during the same 12 month period;
- Not normally be occupied by the same person for more than 31 consecutive days during any period or periods which together amount to 7 months.
Provided the above conditions are met, any profits are treated as earned rather than unearned income. This enables the income to qualify as relevant earnings for the purposes of pension premiums.
Where the landlord has more than one property which is available as furnished holiday lettings, in determining the 105-day test he may elect to average the number of let days of any, or all of the properties let by that person. The election has to be made by the first anniversary of 31 January following the end of the relevant tax year (i.e. within 1 year 10 months of the end of that year).
A UK property business and an EEA property business are treated as two distinct businesses. Accordingly, a separate election is required for each.
If the holiday accommodation is under-used for a year so that the letting condition is not met, an election can be made to treat the accommodation as qualifying accommodation for that year. The relief works as follows:
- Where a landlord qualifies for furnished holiday lettings, whether or not by making an averaging election (year 1), and the accommodation continues to be let during the following year, or the following two years, but does not qualify solely because the period of actual letting falls below the 105 day threshold, then provided the landlord genuinely intended to meet the letting condition, he can elect for the accommodation to be treated as qualifying holiday accommodation for year 2, or years 2 and 3. An election cannot be made to include the profits of year 3 unless an election is made for year 2. Furthermore, holiday accommodation that qualifies under the period of grace rules cannot be included in an averaging claim.
Losses arising from a UK, or EEA furnished holiday lettings business are treated as two separate trades, and any losses may only be carried forward and set against the future profits of the same trade. Sideways loss relief is no longer available to set losses from furnished holiday lettings against other income. In addition any terminal losses are not available for sideways relief.
Interest paid, including overdraft interest, remains allowable as a deduction in computing assessable profits, or allowable losses.
Capital allowances may be claimed in respect of the plant and machinery used within the property.
On disposal of the property, roll-over relief is available against CGT provided the whole of the sale proceeds are reinvested into further qualifying business assets (not necessarily property for holiday lettings). If roll-over relief is not claimed, Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) may be available to reduce the rate of CGT down to 10% in respect of gains arising from the disposal of certain business assets. (See Business Asset Disposal Relief section.)