Let’s remind ourselves of the changes that have taken place with regards to Furnished Holiday Lettings (FHLs):
1. The treatment of properties in the European Economic Area (EEA)
From 2009/10, properties in the EEA in addition to the UK have qualified as FHLs. UK properties are treated as one ‘business’ and those in the EEA as another.
2. The period for which a property must be available for let and is actually let
Availability test – during the tax year, the accommodation is available for let to the public for at least 140 days, but this will increase to 210 days from 2012/13
Occupancy test - during the tax year, the accommodation is actually let to the public for at least 70 days, but this will increase to 105 days from 2012/13
Pattern of occupancy – the property must not be let for periods of “longer term occupation” for more than 155 days during the tax year. A “longer term occupation” is a letting to the same person for longer than 31 consecutive days
3. The offset of losses
Any losses made may only be offset against profits from other properties in the same FHL business or carried forward to utilise against from the same FHL business. So you could not offset losses from the UK FHLs against profits from the EEA FHLs, because these are separate businesses. Prior to April 2011, you were able to utilise FHL losses against other income.
One of the main advantages of FHL status is the availability of the various business capital gains tax reliefs, in particular Entrepreneur’s Relief. If you are unlikely to achieve the new 105 day letting condition, then you may wish to consider selling your portfolio whilst the properties still qualify as FHLs. BUT, it should be noted that Entrepreneur’s Relief continues to be available against the disposal of the property within 36 months of the date that the trade ceased, so you should not need to make a decision immediately.
You would be advised to seek professional advice before making any decisions though, as the tax and impact on your income could be significant. Your local TaxAssist Accountant would be happy to discuss this with you.