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Furnished Holiday Lettings

One of the unexpected and less publicised changes in the Budget was in respect of Furnished Holiday Lettings. These are short-term lettings of property in the UK, often in traditional holiday areas – often, but by no means always: despite the name the reliefs are available if the statutory conditions as to availability and occupancy apply regardless of the location of the property.

The conditions for relief will doubtless be well-known to most of those who are affected: in outline they require that the property must be

available for holiday letting to the public on a commercial basis for 140 days or more in the “relevant period” (usually the tax year), and
actually let commercially for 70 days or more, and
let for periods of longer-term occupation (more than 31 consecutive days) for not more than 155 days during the year.

The reliefs in question are valuable: essentially a furnished holiday lettings business is treated as a trade for most tax purposes resulting in:

the ability to offset losses against other income;
the right to claim capital allowances;
entitlement to Landlords Energy Saving Allowance (LESA);
access to valuable capital gains reliefs (including in particular entrepreneurs’ relief); and
treatment of profits as “relevant earnings” for pension purposes

The Good News in the Budget is that it has (rather belatedly) been recognised that in granting relief only in respect of properties in the UK, the law has probably been contrary to European law. Hence HMRC now accept that the reliefs in question can be claimed in respect of property which meets the qualifying conditions and is located elsewhere in the European Economic Area..

The Bad News is that the favoured treatment of Furnished Holiday Lettings is to be withdrawn altogether from 6 April 2010. Owners of properties standing at a gain will doubtless want to consider whether it is worth disposing of the property before that date in order to take advantage of the 10% tax rate afforded by Entrepreneurs’ Relief. If a “real” disposal is not appropriate, an artificial disposal, perhaps to a family member (not a spouse) trust or company may be worth considering, though the possibility of Stamp Duty Land Tax costs should not be overlooked.

Whether you are an owner of UK property contemplating loss of reliefs or of EEA property contemplating the (temporary) bestowal of them, please get in touch with your usual contact partner if further advice is required.