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Kirk Rice Blog

Will My Holiday Home Still Qualify As A Furnished Holiday Let (FHL) This Year?Written on May 28, 2020 by Kirk Rice LLP

Will My Holiday Home Still Qualify As A Furnished Holiday Let (FHL) This Year?
Taxing Times Questions

The Question:

I have a holiday home that I let out throughout last year. The situation with the COVID-19 pandemic has meant that I have had to cancel several bookings for this year. I am concerned that with so few bookings this year that the property will not qualify as a furnished holiday letting (FHL) with HMRC. Is there anything I can do?

Kirk Rice LLP answers:

Furnished holiday lettings (FHL) qualify for favourable tax treatment for certain income tax and capital gains tax purposes. The favourable treatment applies both where the property is owned and let by individuals or acquired via and let by a company.

All FHL’s owned by a particular person are treated as one furnished holiday business. If other buy to let properties are owned, then the FHL profit or loss is calculated separately to those.

Unlike the situation for other residential property that is let, capital allowances are available on plant and machinery used in the accommodation (hence there is no deduction for expenditure on replacing furniture).

The income that an individual receives from letting furnished holiday accommodation counts as ‘relevant UK earnings’ for pension purposes. This means that even if the individual is not UK-resident, he is entitled to tax relief on pension contributions.

The losses are treated as trading losses of a deemed trade and can be carried forward against future profits from the same deemed trade.

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Principle FHL Conditions

Several conditions must be satisfied for a property to be classified as an FHL.

The principal requirements are that there must be ‘commercial letting’ of ‘furnished holiday accommodation’ in the UK or EEA. The former means that the property must be let on a commercial basis with a view to profit. Holiday accommodation is ‘furnished’ if the user is entitled to use of the furniture, but satisfying the ‘holiday accommodation’ requirement is more difficult.

  • The property must be available for commercial letting to the public for a minimum of 210 days in the tax year or accounting period (the ‘availability condition’);
  • The property must be commercially let as holiday accommodation for a minimum of 105 days in the tax year or accounting period (the ‘letting condition’); and
  • There must be no more than 155 days in the tax year or accounting period for which the same person occupies the property for more than 31 days (the ‘pattern of occupation condition’)

It is the second of these bullet points that you are referring to in your question.

There is an additional form of relief available to you for situations such as yours where

  • during a tax year (Year 1) the property meets the conditions to be regarded as qualifying holiday accommodation; and
  • although it is let during either the next tax year (Year 2) or the next two tax years (Years 2 and 3), it does not so qualify in that year or those years only because it fails to meet the letting condition for that year or those years; but
  • you had a ‘genuine intention’ that the property would meet the letting condition in Year 2 or in both of Years 2 and 3

 

Any reader interested in discussing how COVID-19 will affect their FHL business should email info@kirkrice.co.uk to arrange a call with one of our specialists.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. Tax treatment is based on individual circumstances and may be subject to change in the future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases or, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.

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