The COVID-19 pandemic and associated lockdown measures have caused a significant impact on businesses including Furnished Holiday Lets (FHL). The government has announced several measures over the past 12-months which have benefited FHLs – including the reduction in the rate of VAT, as well as the business rates holiday. However, they are yet to announce whether the letting condition will be relaxed.
The impact of COVID-19 on those who operate Furnished Holiday Lettings has undoubtedly been significant, with reduced bookings meaning reduced income. However, problems may arise if the FHL has not been let for a period of more than 105 days in the tax year.
In order to qualify for the various tax benefits an FHL offers, the property must be situated in the UK or the EEA and be run on a commercial basis with a view to making a profit.
It must also meet the following three criteria in each tax year:
- The availability condition – Be available for letting as furnished holiday accommodation for at least 210 days in the year.
- The pattern of occupation condition – There must not be more than 155 days of lettings in a year that exceed 31 days.
- The letting condition – Be let for at least 105 days in the year (excluding any lets over 31 days).
Due to COVID measures, it may be difficult for the letting condition to be met meaning that the property would cease to qualify as an FHL and lose its beneficial tax status.
For established FHL businesses i.e. the property has qualified as an FHL in the previous tax year, there is good news. If there was an intention to meet the letting condition but this was not possible due to the COVID-19 measures, a ‘period of grace election’ should allow the property to qualify as an FHL so long as the other qualifying conditions are met. This can be extended for a further tax year but after two years of non-qualification, the property will not qualify as an FHL.
The election is not automatic and has to be claimed, normally via the individual’s tax return, but can also be made in writing.
New FHL businesses
The ‘period of grace election’ does not apply to new FHL businesses. Instead, the property needs to meet the criteria throughout the 365-day period from the first commercial letting of the property.
It is important to note that the 365-day period does not have to be the tax year to 5 April 2021. Depending on when a property was first let, there may be time after lockdown to meet the conditions for the first year of the new FHL business.
If the criteria are still not met in this period, the property will not qualify as an FHL although it may qualify in future years.
Due to the availability of the ‘period of grace election’, this should not have an impact on established FHL businesses i.e., ones that have met the criteria before. It is more likely to have an impact on new FHL businesses.
Need more information?
We offer a wide range of services which are unique to Furnished Holiday Lets. Our team of chartered accountants have a wealth of experience and work hard to ensure they create smart and effective tax-efficient solutions to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.
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