Owners of furnished holiday accommodation should act now to ensure that important tax benefits are not lost next April. In particular, the holiday season may need to be extended so that you can demonstrate that holiday accommodation is available for holiday lets for at least 30 weeks, and actually let for 15 of these weeks. These periods are both 50% longer than before, and should be addressed now in order to ensure that lettings in the 2012 season continue to qualify.
Concise Rural Taxation 2011/12 explains that for many years, Furnished Holiday Lettings were subject to the same tax rules as other businesses, rather than the less generous provisions applicable to let property. There were detailed requirements as to the period for which the property had to be available to let, plus a minimum period for which it was actually let. These advantages were available in respect of property in the UK, but not for property elsewhere in Europe available for holiday lettings but subject to UK taxation. In order to harmonise the treatment of holiday lettings subject to UK taxation throughout Europe, the 2010 Budget proposed that the advantages held by UK property should be withdrawn.
The 2011 Budget has however, reversed this without fully reverting to the original position. The current position concerning Furnished Holiday lettings can therefore be summarised as follows.
Income from Furnished Holiday Lettings is broadly treated as business or trade income. It is therefore possible to claim:
• Capital Allowances (against Income Tax)
• Rollover Relief from CGT (Capital Gains Tax)
• Holdover (Gifts) Relief from CGT
• Entrepreneurs’ Relief from CGT
• Business Property Relief from Inheritance Tax
• Relief for Pension Contributions
• limited Loss Relief, although this is now restricted to relief against profits from other Furnished Holiday Lettings.
These provisions apply to Furnished Holiday Lettings, subject to UK taxation, wherever they are situated in the European Economic Area.
The requirements to qualify for this treatment are as follows:
• The enterprise must be run commercially, with a view to a profit
• No letting should be longer than 155 days per annum
• No single holiday let should be more than 31 days
• The property must be available for holiday letting for at least 210 days (30 weeks) a year, with effect from April 2012 (previously 140 days, or 20 weeks)
• The property must actually be let as a holiday letting for at least 105 days (15 weeks) a year, with effect from April 2012 (previously 70 days or 10 weeks).
With the exception of Loss Relief, the latest provisions have therefore restored the recent advantageous treatment of Furnished Holiday Lettings, albeit subject to more stringent requirements concerning minimum periods of availability and letting. Furthermore these benefits have been extended to UK-taxed property throughout the European Economic Area.
This is a short excerpt from Concise Rural Taxation 2011/12, which also explains the various tax reliefs and allowances referred to here, as well as VAT (Value Added Tax) as it affects rural property. Follow this link for more information.