Furnished holiday lettings – the final furlong
Despite concerted lobbying from the UK tourist sector, PBR 09 confirms the abolition of all tax benefits applying to the Furnished Holiday letting (FHL) sector, which has operated as a deemed trade until now. As a consequence of this, a number of tax benefits will be withdrawn from April 2010, and two technical documents set out the effect of the changes in some detail, including the draft legislation.
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FHL companies
They will have ceased carrying on a trade as at 5 April 2010, but in a company they will have continued to carry on an activity which is not a trading activity so at the point of sale they would be a non qualifying company. If you cease activities completely on 5 April 2010 then you would have the three year rule to dispose of the company - sell the properties, pay CGT in the company and then distribute the proceeds as capital and claim ER. But I suspect that the CG in the company would be unattractive. Unless you can sell the shares with the properties unlet - not convinced this would work anyway.
Does anyone else have a view? I'm pretty sure I'm right.
FHL Companies
Rebecca,
The HMRC technical says:
"The company ceased to be a trading company (or the holding company of a trading group) before 6 April 2010, including cases where the ending of that status results from the deemed cessation of the company’s (or group’s) FHL business on 5 April 2010, in which case disposals of shares in the company made within three years from that cessation will remain eligible for entrepreneurs’ relief if the other qualifying conditions are met."
In response to dennywren1, the FHL rules have never applied to BPR, so the business would have to qualify as an actual trade rather than a deemed one; if HMRC are correct in that the provision of services are treated as a separate trade, as distinct from a property letting (investment) business, would they allow BPR on the FHL in the event that the services element exceeds 50% of the total level of activities (i.e. the business overall is not one of wholly or mainly the holding of investments)? Will preparing a combined set of accounts demonstrating two elements of one business help? Given that both 'businesses' use the property, I am not sure how you would apply BPR if the services business is considered separate.
FHL company
You state that FHL companies will not qualify for ER after 5 April 2010.
Do they not have use of the '3 year period'? If not does anyone have thoughts on planning for such companies? Should the property be sold and business be ceased pre 5 April. and then wound up thereafter (within 3 years) .....would that work?