Even while all property rentals are taxed the same, those classified as “furnished holiday lettings” (FHLs)” get preferential treatment. The operation of an FHL is regarded to be a business rather than a property income investment, and consequently, the regular business revenue and expenditure accounts are generated. This approach generates a variety of tax advantages for the FHL owner, including tax relief for pension contributions, loans and different capital gains tax reliefs (e.g. Rollover relief, Gift relief, Business Asset Disposal Relief) (e.g. Rollover relief, Gift relief, Business Asset Disposal Relief).
There are several conditions necessary for a let to qualify as an FHL, not least that the property must be completely equipped so that anybody moving into the property must be able to continue living there without having to acquire any extra furniture. The accommodation must be ‘available’ for short-term leasing for 210 days in any one tax year and be rented for 105 days of the year. There should be no more than 155 days of long-term letting in a single tax year (the “occupation” criterion), and the property should not generally be rented out for more than 31 days in any period of 155 days.
As a consequence of the multiple lockdown procedures enacted by the government owing to the pandemic, certain holiday let businesses may not have reached the different occupancy levels necessary to qualify as an FHL. In this case, there is a possibility to make an averaging election if a landlord owns more than one-holiday rental and the letting condition is satisfied by some but not all of the units in the portfolio. The test is done with respect to the average occupancy rate for all properties, rather than independently for each.
‘Period of grace’
A ‘Period of Grace’ election may be an option if the landlord just has a one-holiday rental or if an averaging election fails to work. FHL is treated as being included in the computation if a property qualifies for FHL in one accounting period out of every three but does not qualify in either the following or the next two years.
Choosing an election
FHL income tax elections may be made on the property income sections of the self-assessment tax return (or in writing) up to one year after the end of the tax year. That allows the landlord till 31 January 2024 to claim for the 2021/22 year.
Conditions not met
Taxation of the property is subject to standard rental accounting standards rather than FHL business regulations if the conditions are not met. A landlord will have no benefit from pension contribution reliefs (except from the £3,600 net of tax relief allowed to all taxpayers), some capital gains tax reliefs or be able to claim capital allowances for such goods as furniture fixtures and equipment. There is always the option of requesting another member of the family to remain for the required number of days, but they will have to pay market rent so that the occupancy rules apply if the landlord is in a scenario where the FHL conditions are not met. Stays by the owner do not count against the occupancy limit.
If a company incurs a loss in an offset year, it must carry those losses forward to be offset against any future profit.
Class 2 and Class 4 NICs are not due on the profits from FHL businesses because the property business is not a trade. If you want to know more about Non Compliance of FHL Rules please contact us on 08001357323 or email email@example.com.