Changes to Furnished Holiday Lettings


Catherine Vickery, Rural Tax Specialist


The finance bill for 2011 is likely to change the definition of the properties that would qualify under the furnished holiday letting rules.


Originally the beneficial treatment for property that qualified under the furnished letting rules only applied to properties situated within the UK which was in breach of the concept of fair trade within the European Union. As we saw with Agricultural Property Relief having to become extended to all agricultural property within the EU, this principle now applies to the furnished holiday lettings.


For the first time from 6 April 2011 those clients with properties in say France or Spain, subject to qualifying under the rules, will now be eligible for the special treatment given to furnished holiday lettings. Qualifying under the rules will be more of a challenge in the future. Currently, to qualify, the property has to be available as a furnished holiday let for a period of 140 days and has to be actually let for at least 70 days on average as furnished holiday letting. If you were fortunate to have two or more properties then the 70 day limit was an average over the properties. For example if you had one let for 60 days out of the 140 and the other was let for 90 days out of the 140, then both would qualify under the rules.


The 140 day letting period usually spans from say May through to the end of September. The changes proposed by the Finance Bill of 2011 will extend that 140 day period to 210 days and therefore you would be looking at a period from March through to the end of September, or April through to the end of October. The 70 day average letting limit is also going to be increased up to 105 days, so both these limits have increased by 50%.


The other main change proposed is that where a loss is made, although the property is deemed to be a trade, the loss will no longer be eligible for relief against your other income in the same tax year. The loss is only going to be available against income from the future holiday letting businesses.


The Capital Allowances for furnished holiday lettings are to be kept in separate pools and therefore when a property does not qualify because it has failed the proposed 105 day test then there will be no capital allowance claim in that particular year. Whilst on the one hand it may be good news to be able to bring in to the regime properties you have in warmer climes, the challenge will be to try and make sure that your properties qualify under the new harsher regime. Do remember of course that in obtaining the average letting days, none of the lettings should be to one individual for more than 30 days during that 210 day period.


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