New rules are re­vealed af­ter hol­i­day home tax shake-up

Yorkshire Post - Property - - PROPERTY - Richard White­lock

THE coali­tion Gov­ern­ment con­firmed last year that it would not re­peal the spe­cial tax rules for Fur­nished Hol­i­day Let­tings (FHLs), but would tighten the qual­i­fi­ca­tion rules and di­lute some of the tax reliefs on of­fer.

The Trea­sury has con­sulted on the is­sue and is propos­ing the fol­low­ing key changes:

In­crease the min­i­mum pe­riod over which a qual­i­fy­ing prop­erty is avail­able to let and ac­tu­ally let to the pub­lic dur­ing a year from 20 weeks and 10 weeks, to 30 weeks and 15 weeks re­spec­tively.

Losses made on UK or Euro­pean Eco­nomic Area (EEA) FHLs will be re­stricted so that they can only be set against prof­its from the same FHL busi­ness, thus end­ing the favourable loss re­lief avail­able on FHL ac­tiv­i­ties whereby losses can be off­set against other in­come.

Use no­tional pools of ex­pen­di­ture for cap­i­tal al­lowances pur­poses, so that when a prop­erty does not qual­ify, no al­lowances are given, but the tax writ­ten down value re­mains avail­able for fu­ture years.

No changes were to be made to the ex­ist­ing Cap­i­tal Gains Tax (CGT) reliefs. Also, rental prof­its made from FHLs will con­tinue to be counted as pen­sion­able earn­ings.

While the Gov­ern­ment be­lieved that these changes would in­cen­tivise hol­i­day let­ting own­ers to in­crease oc­cu­pancy and ex­tend the hol­i­day sea­son, many ex­pressed concern that prop­er­ties in sea­sonal or re­mote lo­ca­tions could be ad­versely af­fected.

The Gov­ern­ment has at­tempted to ad­dress the main ar­eas of concern, pri­mar­ily those busi­nesses that may strug­gle to meet the in­creased avail­abil­ity and oc­cu­pancy re­quire­ments.

There­fore, the pro­pos­als have been mod­i­fied to ap­ply the avail­abil­ity and oc­cu­pancy rules to all prop­er­ties owned by a busi­ness on an av­er­age ba­sis, and not on a prop­erty by prop­erty ba­sis. This will avoid the com­plex­i­ties where some prop­er­ties qual­ify while oth­ers do not.

An­other key change is to al­low busi­nesses which meet the qual­i­fy­ing cri­te­ria in one year to elect to be treated as if they met the cri­te­ria in the fol­low­ing two years, pro­vided cer­tain cri­te­ria are met.

The Gov­ern­ment be­lieves these pro­vide a bet­ter so­lu­tion for in­ter­mit­tent FHL qual­i­fi­ca­tion than the cap­i­tal al­lowances no­tional pools pro­posal, so the pro­posed no­tional pools idea has been scrapped, mean­ing busi­nesses that fail to qual­ify will need to carry out a deemed cap­i­tal al­lowances dis­posal at val­u­a­tion, with a fur­ther val­u­a­tion needed if it qual­i­fies again later.

The like­li­hood of this be­ing a fre­quent is­sue is now di­min­ished thanks to the new av­er­ag­ing and two year elec­tion rules. No doubt many FHL own­ers will wel­come this change, as it will give more cer­tainty as busi­nesses will know at the start of a tax year whether they will qual­ify that year, which may en­able them to make in­vest­ment de­ci­sions or un­dergo re­fur­bish­ment projects with­out concern that this may scup­per their FHL sta­tus.

The loss re­lief changes will come into ef­fect from April 2011 whereas the in­creased avail­abil­ity and oc­cu­pancy rules come into force from April 2012, al­low­ing prop­erty own­ers more time to ad­ver­tise and seek ex­tra book­ings.

Richard White­lock is a tax ex­pert at Gar­butt & El­liott tel: 0113 273 9600, www.gar­but­tel­

CHANGES: Hol­i­day lets face a dif­fer­ent tax regime.

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