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Following the announcements in the June Budget, the Government last week published a public consultation document on furnished holiday lettings (FHLs), proposing changes to rules to comply with EU law.
The mooted revamp is likely to have an adverse affect on some families but it also boasts a number of advantages, according to one legal expert.
FHLs are currently treated as a trade for tax purposes, enjoying advantages of preferential loss relief, capital allowances, and landlord’s energy saving allowances, pensions relief and, for CGT purposes, rollover relief and entrepreneurs’ relief.
While ministers have confirmed that the rules will be extended to include the European Economic Area (EEA) as well as the UK, they hope to make them ‘better targeted at businesses that are run commercially for profit rather than for personal use.’
The proposals – set out in the document Furnished Holiday Lettings Consultation – are to:
- Increase the number of days a property must be available for letting to the public from 140 days to 210 days.
- Increase the number of days a property must be actually let to the public from 70 days to 105 days.
- Restrict the loss relief from a furnished holiday let so it can only be set against certain income from the same business, rather than against a taxpayer’s other income.
Jonathan Legg, a partner at London solicitors Mishcon de Reya, acknowledged that the extension of the FHL rules to the EEA ‘solves the EU compliance issue’.
But he went on to note: ‘A person who only lets out their property for 70 days would lose the FHL tax benefits under the proposed changes. They would have to increase occupancy to well over three months.
‘This is likely to hit families and others who tend to use the property as a holiday home on a more informal basis.’
However, Mr Legg added that not all advantages would be lost. ‘The major plus is that the Government seems committed to retaining the concept of the FHL, and therefore the other tax benefits that flow from this treatment,’ he said.
‘In particular, the advantageous entrepreneurs’ relief would still be available. Coupled with the welcome changes to the relief in the Budget, it means an individual who sells a FHL would continue to be liable to CGT at only 10% on the first £5 million of capital gains realised.’
