Furnished holiday lettings changes explained

Am I correct that the VAT threshold is still based on the old definition?

That is to say you can have a FHL for VAT but not for income tax?

Hi Rebecca

Thanks for this article . I am still no wiser as to this  question : 

on which furnished lettings you can claim 10% wear and tear allowance and on which you can't. Can you explain easily please ? 

Can FHL losses be set against other property income in the same year or do they have to be carried forward to the following year and use against future FHL profits

Am I right in assuming that the period of grace only really affects the CGT position? FHL losses still cannot be offset against other income from 2011/12? 

Thanks

@Robert Baker

My understanding is that FHL losses can only be carried forward against future profits from the same 'business'.  So "UK FHL" losses are only available against future "UK FHL" profits, and "EEA FHL" losses can only be carried forward against "EEA FHL" profits.

The only exception to this (I think) is the provision in ITA 2007 s120, which allow a property loss which arises due to a capital allowance claim to be set against general income.  Previously, these were only ever claimed for non-FHL properties (in the odd occasions CAs could be claimed), as the FHl loss provisions were more beneficial.  However, now that all other FHL loss reliefs have been repealled, I can't see anything to suggest that s120 does not apply to FHL type properties.

Perhaps Rebecca can clarify?

Thanks

A UK furnished holiday lettings business (and now an EEA furnished holiday lettings business) is treated as a seperate trade for tax purposes. Previously, this allowed losses from the business to be used in the same way as any other trade i.e. they could be off-set in the current year against other taxable income or carried back for a year (or more in certain early years or terminal loss scenarios). However, with effect from 2011/12 (or accounting periods beginning on or after 1 April 2011 for companies) all the various loss relief mechanisms available are removed so that the only way to use an FHL loss will be to carry it forward against profits made from the same FHL business (i.e. UK and other-EEA FHL losses will need to be streamed separately).

In answer to MarkP's question, the UK or EEA FHL business is treated as a trade under s127/s127ZA, the profits of which are carved out of the person's results from property businesses. As such, I do not think that the facility to utilise property losses under s120 is available in relation to FHL businesses because the loss is deemed to have arisen from a trading source and not a property business source.

@jonesrichardm

Thanks, I will have a look.

[quote=Bahram]

Hi Rebecca

Thanks for this article . I am still no wiser as to this  question : 

on which furnished lettings you can claim 10% wear and tear allowance and on which you can't. Can you explain easily please ? 

10 % wear and tear allowance is supposed to only be claimed of FURNSIHED RESIDENTIAL LETTINGS 

IT IS NOT AVAILABLE ON OTHER LETTINGS

FURNISHED HOLIDAY LETTINGS QUALIFY FOR ORDINARY capital allowances

capital allowances(because of the renewals basis) are not generally available on other let property falling outside the description of "holiday" "furnished" and "residential".

I hope this helps

not available in 2011/12

Is a property automatically treated as FHL if it passes the qualifying tests or is it the choice of the owner if it is treated as FHL or as normal property income even if it does meet the FHL requirements?

Will the changes help in preventing assessment for class 2 nat insurance on holiday lettings income?

In nearly all cases it is beneficial to treat it as an FHL for tax purposes.

Hi

Am I right in assuming that losses for FHL (acquired and let prior to the change in rules) can only be off-set against the same income in trade and not any other source of income (with the exception that losses arrive out of capital allowances claims).

Also if a person has say three furnished holiday lets trading under the same name, but owned under separate deeds and makes a profit on one letting and a loss on the other. Can the loss be off-set against this profit?

Many thanks

Jennifer

Hi

Would you be able to offset carried forward losses on the previous years' FHL letting against the the CGT due on the sale of the asset?

cheers Kev