A client started letting her holiday home commercially in Jan 16. It has already clocked up the requisite 105 days to qualify as a Furnished Holiday Let. It also earns income from photo shoots. This is not holiday letting (even if the TV crews sometimes stay overnight) and started in late 2015 so some of it pre-dates the FHL.
Should the photo shoot income be bracketed with the FHL income or should it be treated as a separate trade subject to Class 4 NI (although below the limit for 2015/16 anyway)? I think the latter but it's the first time I've come across a dual-trade FHL so thought I'd better check.
In other words, once a property qualifies as an FHL, does all income arising during the tax year for that property get treated as FHL income or should I be accounting for it as 2 separate trades?
Replies (39)
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I don't understand. Are you saying that the house, as well as being rented out, is also a fashion model?
Surely it is either let on a commercial basis with the lessee being entitled to also use furniture in the accommodation or it isn't.
What the lessee does with the property is up to them. It is qualifying holiday accommodation if it is available to let for 210 days, is so let for 105 days (excluding periods in excess of 31 days). There is no requirement that the lessee actually be on holiday.
There are no trades. It is property income that is deemed to be a trade.
A straight application of the legislation is all that is required.
I think the point Portia, I mean Norma Stitz, is making is that what the customers choose to use the property for is incidental, the key issue is that they are renting a furnished holiday property. Whether it be for an hour, day or week the fundamental remains true.
Norma's points - there are two of them - is that furnished holiday lettings have nothing necessarily to do with holidays. The legislation does not require that the lessor use the furnished accommodation for holidaying in.
All that is required is that the property be let on a commercial basis - to either a holidaymaker or photographic company - for no longer than 31 days in a continuous period, with them having the right to use furniture, and the aggregate period for which it is 105+ days, with it being available for such letting for 210 plus days.
Both the holiday and the photo shoot are crimson kippers. You have letting income, which appears, in the case of either type of lessor, to count towards your 105 days.
So only now do we discover that the individual has a self-employment as a film producer, in which she just happens to make use of his FHL property. The income does not arise from use of the property, as such; it arises from her being a film producer (and just happening to use the property for the purpose). They shoot horses you know.
Sweet cheeses! So this was complete b*llocks:
Highlander, it is not the guest who is using the house for photo shoots, it is the landlord between lettings. I don't think landlords normally allow their tenants to have film crews stomping all over their property.
So your client is letting the property either to holidaymakers or to film producers.
For the hard of understanding, what I originally said was that what the person that the property is let to does with the property is completely frigging irrelevant.
If it is let on a commercial basis and the person to whom it is let has the use of furniture (ie they can sit on chairs and [***]), and they do not have use of it for more than 31 days, then, whether they use it for holidaymaking, make a [***] film or grow marijuana in there, it counts towards the 105 days required for it to qualify as an FHL.
Whatever they do with it it is property income, from one property, which is either taxable as property income or is taxed as trading income (of one trade) if the FHL requirements are met.
I could not care less what you have read "somewhere". Why not just read the frigging legislation.
What a peculiar way of showing appreciation to those trying to help you.
Chris, if I sell a condom, I don't care if Big John uses it to ram his missus, or whether he uses it to pack explosives for underwater exploration.
Portia, I mean enormous [***], is correct.
Chris you are missing the test. Perhaps that is why Portia's patience is being tested.
You need to start by reading s323 3 (a) and (b). Once you have read that, you will see that the use of the term "holiday" in s325 is irrelevant.
This is not difficult legislation. All you need to do is read it.
There are tests to satisfy.
There isn't one test that prohibits guests from using the accommodation for filming, [***], or burying their adulterous wife.
Calling me a troll is lame. And despite what you may think, Accounting Web members are not your unpaid tax advisors.
The legislation does not say what the occupants must use the property for.
Can you point me to part of the legislation where there are restrictions on what the accommodation can and cannot be used for?
Hi Cfield, aggregate with holiday income.
My opinion on the subject is that the property is furnished holiday accommodation and qualifies as furnished holiday accommodation under the tests specified. Therefore when they let the property each let qualifies under the same principle.
You seem to be focusing on what the end user does with the property rather than the property setup. you make reference to a brothel and it not qualifying, however you are incorrect in this thinking as long as it isn't the client who is running the brothel business!
If your client was putting contractual stipulations on the photo shoot users, such as you can't use the furniture, then yes you would have a point. However nothing you have said, other than the very confusing post at 16:38, makes me believe that this is not 'furnished holiday let' income.
325
Meaning of “qualifying holiday accommodation”
.
(1)
Accommodation which is let by a person during a tax year is “qualifying holiday accommodation” for the tax year if the availability, letting and pattern of occupation conditions are met.
.
(2)
The availability condition is that, during the relevant period, the accommodation is available for commercial letting as holiday accommodation to the public generally for at least 140 days.
.
(3)
The letting condition is that, during the relevant period, the accommodation is commercially let as holiday accommodation to members of the public for at least 70 days.
.
(4)
For the purposes of the letting condition, a letting of accommodation for a period of longer-term occupation (see subsection (6)) is not a letting of it as holiday accommodation.
.
(5)
The pattern of occupation condition is that, during the relevant period, not more than 155 days fall during periods of longer-term occupation.
.
(6)
For the purposes of this section a “period of longer-term occupation” is a continuous period of more than 31 days during which the accommodation is in the same occupation otherwise than because of circumstances that are not normal.
_______________________________
Let as holiday accommodation is part of the letting tests.
I also struggle to see it qualifying if not let as holiday accommodation, however that does not mean ( to me) it requires use as such.
I think one could argue that where the pattern of marketing/advertising was "as holiday accommodation" that irrespective of the party taking a let using for something else it was " let as" holiday accommodation.
Now where the letting document varied in style etc from the standard holiday letting document, and was clear the letting was different, there is doubt it is let "as" holiday accommodation", but if not, same documentation/terms, I think actual use is irrelevant.
So, key is maybe what your client actually does .
I have let commercial property as film sets (Rebus and North & South) and certainly would not have used a standard letting agreement, but that is more because our standard is a much longer term thing, we do not do FHL. I would have thought a FHL agreement might well fit well into use to short term lease to a production company/photographer etc.
I agree, in part, with Chris's interpretation. And I agree, in part, with the alternative interpretation.
S. 323 requires that the lessee is entitled to the use of furniture and that the accommodation is qualifying holiday accommodation, under the tests in s. 325.
For the tests in s. 325 the accommodation must be available for commercial letting as holiday accommodation to the public generally for at least 210 days and must actually be commercially let as holiday accommodation to members of the public for at least 105 days.
When it is being let to the film production people it is not being let "as holiday accommodation", and it is also not being let to "members of the public". It is also not available for commercial letting as holiday accommodation to the public generally.
If, despite that, the tests are satisfied by reference to the time it is actually let as holiday accommodation to members of the public and/or is available for such letting, then the accommodation satisfies the definition of qualifying accommodation.
Having satisfied the definition we go back to s. 323 and then find that ANY letting of that qualifying holiday accommodation where the lessee has use of (some) furniture is a letting of furnished holiday accommodation, and consequently is a receipt of the FHL business.
We don't need Goldilocks to turn up though and actually use all of the furniture, as Chris seems to suggest. None of it need be actually used. All that is required is an entitlement to use (some) furniture in connection with the use of the accommodation.
Chris implies that the s. 325 tests are met, disregarding the photo shoot use, and so all letting receipts, where the lessee is entitled to use (some) furniture) are receipts of the FHL business.
Basil, whatever the nature of the photo shoot letting, what is being let is the same "accommodation" as is being let as "holiday accommodation".
If that "accommodation" satisfies the test of being "qualifying holiday accommodation" by reference to the periods only of when it is available to be and/or being actually let as holiday accommodation in s. 325, then the effect of s. 323(3) is that all lettings where the lessee is entitled to use furniture are lettings of furnished holiday accommodation.
Essentially, where s. 323(3)(b) has been satisfied by looking only at the "holiday accommodation use" in the relevant period, and letting in the tax year that satisfies the test of s. 323(a) then satisfies the definition of being a letting of furnished holiday accommodation.
In relation to apportionments, and notwithstanding HMRC's layout of the relevant tax return pages, an apportionment under s. 327 is only ever required if one of the three tests in s. 327(2) applies. Likewise an apportionment is only required under s. 328 if the test in s. 328(2). Similarly with s. 328A and s. 328B.
fawltybasil2575 wrote:
[even though the OP now appears to have defected to the Opposition benches :)
For a minute there I thought you might be suggesting I'd become a Jeremy Corbyn supporter! ).
I think, given the current Labour party, it is quite possible to sit on the opposition benches and not be a JC supporter; there a fair few of that ilk already seated.
Sorry. Haven't been back for a while to keep up on this.
I still disagree with Basil that WHAT is being let alters its spots when WHY it is being let changes.
I do not think that Basil's use of the generic term "property" (which has a very wide legal meaning) is useful.
Basil uses the word property to suggest that property is a wider concept than accommodation. I agree with that proposition, but only because of the breadth of the concept of property.
It is generally accepted that "accommodation" takes its ordinary meaning from the dictionary: 'a room, group of rooms, or building in which someone may live or stay.' https://en.oxforddictionaries.com/definition/accommodation
I think the appropriate word to use for the "property" is "dwelling", and a dwelling is a narrower concept than accommodation.
When the dwelling is let for photo shoots it is no less a dwelling simply because it is being used otherwise than as a dwelling.
Basil's suspicious mind assumes that there is some mischief here that the Parliamentary Draftsman should have "headed off at the pass".
I disagree. There is no mischief, because the bar has been set suitably high.
To satisfy the definition of qualifying holiday accommodation, the dwelling must have actually been let as holiday accommodation to members of the public for at least 105 days in the relevant period. It is not so let when it is being let for photo shoots.
The dwelling must have also been available for letting (including the time actually let as such) as holiday accommodation to the public generally for at least 210 days in the relevant period. It is not so available when it is being let for photo shoots.
Thus having satisfied the definition of qualifying holiday accommodation, there is at most 155 days on which the dwelling can be put to some purpose other than (and incidental to) letting as holiday accommodation.
Having set the bar so high, does the Parliamentary Draftsman really need to go out of his way to ensure that any receipts from such incidental activity fall outwith the furnished holiday lettings business? Or can he be content that the generation of such receipts cannot be attributable to any mischief and can be treated as receipts of that same single business?
Personally, I think the latter. In much the same way that the letting of surplus trading accommodation is permitted to be treated as a receipt of the trade.
Incidentally Chris, the profits of an FHL business are not liable to either Class 2 or Class 4 NI contributions. An FHL is only deemed to be a trade for CGT and Income Tax loss relief purposes. For other Income Tax purposes the profits are relevant earnings for pension purposes, capital allowances can be claimed against the profits, and a husband and wife can allocate the profits other than 50:50, but the profits are taxed as property income.
Is this a new variant of a spot the difference competition?
If so my competition entry:
Para 1 has the word "yes" in one version but not in the other,
Para two has the words "for it to be a trade" in one version but not the other.
Edit: now one of the near duplicate posts has gone, very strange
The letters in relation to Class 2 NIC on property businesses followed HMRC losing in the Elisabeth Moyne Ramsay case. However, the NICA 2015 amendments to SSCBA 1992 have put it beyond doubt that Class 2 NIcs are not due in relation to property businesses, including FHLs.
I'm happy to differ Basil.
However you do overlook one important word in the online OED definition, which appears before either "stay" or "live". That word is "may", as opposed to "must" or "does".
If I lend you two tennis rackets to use as snow shoes, then they are still tennis rackets, even though you're not playing tennis with them, but are walking with them.
A dwelling is accommodation. It equally remains a dwelling, and accommodation, even if it's being used as a cannabis farm. And I know how fond you are of your cannabis farms.
This topic is so outside my sphere of operation, I am not quite sure why I started reading it (probably because the number of replies figure intrigued me).
It gradually turned out to be one of the best Aweb debates I have read for a long time. And good to see the big beasts back and slugging it out.
Keep up the good work!