What happens if you lose FHL Status? Reply

To qualify as a FHL (Furnished Holiday Let) your property must be:

– in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway

– furnished – there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture

The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but didn’t make a profit, the letting will still be treated as commercial.

Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions.

The pattern of occupation condition
If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition isn’t met so your property won’t be a FHL for that year.

The availability condition
Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.

The letting condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

What if you fail these tests?

  1. You will be restricted on how you can use losses arising in the business
  2. CGT and IHT business property reliefs will be lost
  3. HMRC are more likely to challenge expenses such as motor, travel, and subsistence

Loss of FHL – Capital Allowances

Capital Allowances can not be claimed on plant, machinery, fixtures, integral features, instead you will only be able to claim replacement cost

Period of grace election
You may genuinely intend to meet the letting condition, but were unable to. If this happens, you may be able to make a period of grace election that allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions were met.

To make an election, you must be able to show that you had a genuine intention to let the property in the year. For example, where you’ve marketed a property to the same or a greater level than in successful years, or where the lettings are cancelled due to unforeseen circumstances, including extreme adverse weather.

You can make an election where the property met the letting condition in the year before the first year you wish to make a period of grace election (either on its own or because of an averaging election). If your property again doesn’t meet the letting condition in the following year, you can make a second period of grace election (as long as you made an election in the previous year).

If your property doesn’t reach the threshold by the fourth year, after 2 consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.

steve@bicknells.net

The tax advantages of Furnished Holiday Lets 1

Traditional Old English Cottage with Thatched Roof

There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).

If you let properties that qualify as FHLs:

  • you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
  • you are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
  • the profits count as earnings for pension purposes

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/cvgg

In addition:

  • The Interest Rate Relief Restrictions don’t apply – these rules only affect Buy to Let Investors
  • Losses can be set against total income and are not restricted to the rental business; PIM4200 onwards deals with normal rental business losses and PIM4130 deals with furnished holiday lettings losses.

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

The availability condition

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

But the extra stamp duty will apply

Furnished holiday lets

The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply.

A Company could help you save tax

The current rate of Corporation Tax is 20% but its falling year on year and by 2020 it will be 18%.

Not only that, its the same rate no matter how many companies you have, previously when there were multiple Corporation Rate if you had associated companies the small companies rate was reduce in a marginal rate calculation.

Stamp Duty (SDLT) on selling Shares is 0.5%.

ExampleSo £1,995 × 0.5% = £9.97. This is rounded up to the nearest £5, which means you pay £10 Stamp Duty.

https://stevejbicknell.com/budget-2016/budget-3/

HMRC have a calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

One of the big benefits of Shares is that its easy to split ownership.

Potentially Exempt Transfers (PET’s) allow you to give away shares provided you survive more that 7 years after the transfer, shares make PETs easy and simple.

When you give away shares it will potentially trigger a capital gain but you will be able to use your personal capital gains allowance of £11,100 to offset this gain.

steve@bicknells.net