Furnished holiday lettings - ceasing to qualify in the future

Furnished holiday lettings - ceasing to qualify...

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A client with an FHL has done a big refurb in 2011/12 which given that AIA is still £100K I suspect means with capital allowances there is likely to be a fairly significant loss in the year.  However, until it is complete he is not sure how well or who he will let it too, ie. if no longer such interest in short term lettings perhaps let out for longer term.  So without a crystal ball it is very difficult to know if it will continue to qualify as an FHL long term.

So my question is this - the 2 year period of grace to elect if falling foul of the number of days actually let (70 days in 2011/12 and 105 days for 2012/13 onwards) is really useful in the short term, but if losses aren't used up then are they just lost in 2 years time due to the "business" ceasing?  I cannot find anything in the revised legislation definitively stating this and given the fact the "business", ie this one property, will continue to be let out and all that has changed is the tax treatment in that it will be a normal lettings business not an FHL, this seems very unfair.  However, obviously fairness is irrelevant and I would be grateful if anyone had any views on this. 

In any case, might this potentially be a big nothing if actually there is a big balancing charge on cessation.  If you have got big capital allowances in the past at 100% thanks to AIA so basically the general pool value is nil, on cessation I understand you would have to include market value in the pool and so effectively all market value of the assets will lead to balancing charge that obviously could be quite significant!  I keep going back and forth on wondering if this all is likely to actually matter in the long run...

Many thanks

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