Furnished Holiday Let

Furnished Holiday Let

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The previous accountant has pooled the income of a FHL together with profits from 5 rental properties.

However, the figures for the year we have taken over show a significant profit for the rental properties but a loss for the FHL.   Clearly it would be better if we continued to pool all the properties together but I don't think that this is correct.  Does anyone think otherwise?

It does meet the criteria for FHL as its been rented out weeky to different occupants for 175 days and available for 250 days.  (A problem with the property prevented it from being let out further).  Presumably this means that it needs to be treated separately as a FHL?

Thanks for any thoughts.

Replies (9)

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Chris M
By mr. mischief
29th Jan 2016 15:16

Separate pools

As of FA 2011 there are 4 separate rental pools which are possible:

1.  UK FHLs.

2.  EEA FHLs.

3.  UK lets not qualifying as FHLs.

4.  All other lets.

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Portia profile image
By Portia Nina Levin
29th Jan 2016 15:54

There are not four pools. There is just a UK property business (which includes UK FHLs) and an overseas property business (which includes EEA FHLs).

For each property business it is necessary to perform separate calculations of the FHL and non-FHL part if either capital allowances are claimed or if any loss relief is claimed.

That prevents FHL capital allowances being used to reduce the profits of the non-FHL part if there are insufficient profits to relieve them in the FHL part, and to prevent losses from one part being relieved outside the property business in the current year.

If no CAs are claimed, and one part has a loss and the other profit, then the loss can be set off by aggregation, as that does not involve the making of a loss relief claim, so there is no need to calculate the profits/losses of the separate parts.

At least that is what the legislation says. The Tax Return forces you to do something else entirely, with the effect that you cannot set a loss from the FHL part against the profit of the non-FHL part (the guidance does tell you how to do the reverse though), even though that is possible in the circumstances described above.

I would continue the pooled treatment in the circumstances you describe, as it provides a technically correct result.

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By Ruddles
29th Jan 2016 23:32

Once again we find ourselves in the position of questioning HMRC's interpretation of the legislation. Whilst not disagreeing with Portia I would say that HMRC's view is what it is and if one takes a contrary stance then one should be prepared for a challenge.

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Portia profile image
By Portia Nina Levin
30th Jan 2016 08:29

Who said HMRC had a different view?

I said that the Tax return form does not allow you to do it. That does not mean that HMRC do not agree. It just means that they have not designed the form to allow it to be done.

No HMRC say it can be done. Read the first paragraph of PIM4120:

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4120.htm

And whilst PIM4130 refers to 2010/11 and earlier, it says the same thing. The only thing that changed in FA 2011 was that sideways relief was stopped for FHL losses.

As both PIM4120 and PIM4130 make clear, if the FHL losses are consumed within the same property business against profits on the non-FHLs, that is not a loss relief claim. That did not change in FA 2011.

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By Ruddles
30th Jan 2016 09:37

My bad

I had wrongly assumed that the tax return design would be aligned with HMRC's guidance.

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Chris M
By mr. mischief
30th Jan 2016 16:24

HS253 Furnished Holiday Let

PIM4130 I think was superceded by HS253 for Furnished Holiday Lets.  Which states:

"If your UK FHL business makes a loss, you can set the loss against your UK FHL profits of later years. Similarly, if your EEA FHL business makes a loss, you can set the loss against your EEA FHL profits of later years. You can’t set the losses of one FHL business against the profits of the other if you have a UK and an EEA business. "

This arose in the FA 2011.  Prior to this, Labour wanted to abolish the concept of FHL altogether, so FA 2011 was a reasonable compromise.

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Portia profile image
By Portia Nina Levin
31st Jan 2016 10:28

I agree that losses of UK FHLs cannot be set against profits of EEA FHLs and vice versa, because that would require a sideways loss relief claim, which is no longer available for FHL losses (since FA 2011).

That was not my previous point. Nor is it the matter the OP is asking about.

The starting point is to calculate one profit or loss for your UK property business (which includes UK FHLs) and one profit or loss for your overseas property business (which includes EEA FHLs).

Let us assume that the OP is talking about a UK property business (which includes a UK FHL).

Now it happens to be that, in aggregate the 5 non-FHLs are in profit, and, in isolation the FHL is in loss. However the law says that we calculate a profit or loss for our whole UK property business.

That has the effect that our FHL loss is set against our non-FHL profit, but that does not involve the making of any loss relief claim (sideways or otherwise); it is simple aggregation of the results as the law tells us.

However, in relation to FHLs, we are then told in ITTOIA 2005, section 327, that we must calculate separate profits and losses for the FHL and non-FHL parts of our property business in three situations:

if any loss claim is made,if any capital allowances are claimed, orif any wear and tear allowance is claimed.

As a result of the simple aggregation process we have not made a loss claim. So if capital allowances and wear and tear allowances have not been made, we have achieved a set-off of the FHL loss against the non-FHL profit.

I have seen nothing in HMRC's guidance to suggest that they disagree with that. There is another section in HS253 which is ambiguous and says something to the effect that losses from the FHL part of the business cannot be set against profits of the non-FHL part of the business.

The context of that comment though is in relation to losses carried forward, where I agree that FHL losses carried forward cannot be set against non-FHL profits of a later period.

I also believe that non-FHL losses cannot be set against FHL profits of a later period. Here I and HMRC differ, because HMRC seem to think that they can.

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Chris M
By mr. mischief
01st Feb 2016 08:40

In practice

I've yet to see a case on this, and I follow them closely as I have a lot of FHLs to cover, mainly in the Lakes.  I agree with the last poster that the HMRC pages are poorly worded - nothing new there then! - and don't seem to agree with what was set out in either the 2011 Budget speech or the stuff put out immediately after that.

My guess is you'd get away with just about anything in this area right now.  Not that I am putting that to the test in the returns I am submitting!

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avatar
By nogammonsinanundoubledgame
01st Feb 2016 10:43

May I add also to the mix ...

.... HMRC take the view, I saw it published somewhere and just at the moment cannot be bothered to find chapter and verse but will check it out if requested (I certainly saw it once quite recently in one of their publications), that you have to ring-fence UK property businesses run in a different legal capacity.

Thus, if you are a member of a partnership, and the partnership includes land and property pages in which you share, then those profits or losses form a separate "property business" even if conducted in the UK alongside another UK property business conducted in sole name. So losses and profits cannot be aggregated between them. I also wonder whether property income arising to the settlor of a settlor-interested trust are dealt with the same way.

This would suggest a potentially unlimited number of property businesses. That is, if HMRC guidance is correct.

With kind regards

Clint Westwood

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