Holiday lets chaos

Living and working in a rural community and surrounded by holiday homes, I agree with Rebecca, homes are owned by locals and farmers as investments, or by town dwellers, as investments.

I can't see one shred of evidence as to why loss of special tax status will lead to a loss of jobs, the lets still need cleaning one or more a week, and the gardens and houses need maintenance.

FHL status is very hard to justify: the homes obtain favourable CGT treatment and (if you play your cards carefully) are IHT free assets. This drives prices up, which drives up inflation, and the cost of rural holidays, this does not benefit anyone other than the FHL owner, and of course the locals cannot afford to live in their villages, so in turn we have more and more Housing Association properties, which of course, in turn are supported by the taxpayer.

If FHL did not have special treatment and we were prepared to accept the situation where house prices do not increase year on year, then more people could afford to come and rent rural properties and still have change to spend in the rural communities for the rest of their holidays. That might may a lasting difference.

I am bemused by all the fuss, and not amused at having to rewrite all my guides on FHLs!

Virtual tax support: www.rossmartin.co.uk

good one

good

did you see my qiestion re this

was looking forward to the webinar again

and the orevious one too

So do we advise on the basis that until the legislation to abolish the FHL rules is reintroduced - UK and EEA Holiday Lets are available for the FHL treatment or only the UK ones?

Do the transitional rules for the inclusion of the EEA properties stand?

Clarity is necessary.

It was very kind of Rebecca Benneyworth to mention us (www.thetranquilotter.co.uk) in such generous terms.  The issues she raises are more subtle and grow out of a for more greatly shifting market and English countryside setting than the comments have reflected. 

I suggest that Rebecca's comments about the appropriateness of the existng reliefs are not only well justified  in our rather special case  but  will be increasingly relevant  to an English rural tourism market that is rapidly coming to look much more for the "holiday experience" rather than for accommodation alone. 

We offer lakeside timber lodges with boats and hot-tubs in a woodland nature reserve (Site of Special Scientific Interest).  Not only do our our lodges have to be sensitively designed to suit disabled guests as well as small children but also our paths, boats and electric buggy.  Our guests employ the on-site services of a masseur, fishing instructors, guides, drivers and others.  There is also a large information component as we provide constantly up dated information on walks, the wildlife, things to do, places to eat and run an interactive website, blog, Facebook anf Twitter accounts. 

Many others, seriously committed to the "self-catering holiday accommodation business", do likewise.  This creates employment far beyond the odd cleaner, vital though they and their personalities are to our offering, including a huge array of skills from mechanics and woodsmen through environmental scientists and hydrologists to masseurs and lastly us, the poor old managers.  The business requires precisely the innovation, investment in lodges and equipment and entrepreneurialism that successive governments say they wish to encourage. 

Is an entreprise like ours not as entitled to the favourable treatment for investment allowances, options, capital gains and inheritance tax as any other commercial or industrial SME?  Removal of FHL would, I understand, have us treated as an investment activity to which all those would be denied, thus reducing the incentive to invest the necessary imagination, money and time in this sector.

Nicholas Kittoe, Director, The Tranquil Otter Limited.

PS.  All AccountingWeb members, Ministers and HMRC offcials would be very welcome to check out the reality of what I am claiming on our website (www.thetranquilotter.co.uk)  as, indeed, at The Tranquil Otter itself.

I absolutely agree with Nicholas. As a tax specialist in the leisure industry I have dozens of FHL owner clients who are without doubt trading in line with established case law over the years.

I have received direct correspondence from various Conservative MPs, as well as from David Cameron's office, setting out their intentions in this regard. It is clear that they will retain the rules but with stricter restrictions to weed out certain obvious abuses of the rules.

It is naive and shows an absolute lack of understand of the industry on the part of the Revenue and commentators in the profession to suggest that such owners should be treated as receiving passive income from property. Owners tend to be providing a hands on 24/7 services to guests - I have been in numerous meetings with such clients when an hours meeting constantly is interrupted by guests needing advice or some service or another. My experience of such clients is that they are trading and their assets should be classed as business assets for both CGT and IHT purposes.

There is absolutely no comparison between a landlord providing accommodation on a long term let and an active FHL business owner. It is vital that advisors get a better understanding of the industry if they are going to properly represent their clients and stop repeating Revenue views and simply accepting that they are correct and relevent - except in the case of perhaps a remote owner of one FHL unit, they are misguided and misinformed.

AW

The change in thne rules would have made little difference to my wife and I as we have an ordinary (profitable) letting business and would still have been able to offset FHL losses under the (dropped) proposals.

There seems little comment on the benefit tyo the economy of FHL businesses. The bulk of our visitors come from overseas and spend l;arge amounts of money in local restaurants, pubs and visitor attractions. I am quite sure the overall spend is 2 to 3 times the rent we collect. We are in a rural area where most farms and large houses are occupied by people who work in the City and presumably collect large bonuses. There is not much economic activity other than tourism.

Of Rebeccas two suggested ways round the problem I would favour "B".

This would certainly in the main allow professionally well run businesses to continue as is and keep out those letting their holiday homes.

Rebecca sorry to hear via Tolley's of your problems and hope you make a full recovery.

Tourism bodies were invited to respond to HMRC's 'Impact Assessment of Withdrawing the Furnished Holiday Letting Rules' - Consultation Stage.

To view and/or download responses go to: www.fonsca.org.uk/fhl.htm. 

Responses to the above were submitted by:

England’s Tourism Alliance (ETA),
Wales Tourism Alliance (WTA),
VisitBritain (VB),
English Association of Self Catering Operators (EASCO),
Association of Scotland's Self-Caterers (ASSC).
Wales Association of Self Catering Operators (WASCO).

Following receipt, consideration and rejection of the 'alternative option' proposed by all of the above, on 19-Mar-10 the HMRC published their 'Impact Assessment of Withdrawing the Furnished Holiday Letting Rules' - Implementation Stage.

Graham Tayler - Chairman
Wales Association of Self Catering Operators
graham.tayler@wasco.org.uk

There are many self catering properties that are single property businesses, but no less genuine than others. The solution is simple. Just increase the qualification/occupancy criteria. Genuine holiday home owners will have no problem meeting far more stringent tests than 2nd home owners could ever manage.

The 'alternative option' proposed by the tourism industry would allow UK self-catering businesses to be protected, and compliance with the EU requirement to apply the FHL Rules to owners of self-catering properties in Europe maintained, through simply increasing the number of weeks that a property has to be occupied by customers.

An analysis of 1,600 cottages in the UK and 900 cottages located in Europe shows that UK properties have a much longer season than properties in Europe; an average of 18 weeks for UK properties versus 11 weeks for European properties. Therefore, if the threshold for occupancy is raised from 10 weeks to either 15 or 20 weeks, this will disproportionately impact owners of properties in Europe.

The results are that;

There is no reason to remove the FHL concessions for owners of FHL propoerties who let their property for a reasonable number of weeks.  It doesn't matter whether they own only 1 FHL property or if they choose to occupy it themselves for short periods between commercial bookings.  There are whole communities that benefit from the tourism generated by FHL's and they deserve to be treated as business concerns as long as they are trading as one.

In reply to AW, I ran a holiday let with my husband which took up every Saturday cleaning out (or mucking out) a seven bed let.  I understand the work that was needed to actively run a holiday let.  To me what I did should be a genuine holiday let.  Where the rules fall down is absent owners letting through an agency, not being involved in the guests problems and not being hands on at all.  They take out a large mortgage, buy the property, use the losses against other income and can then sell it at a huge profit without the full cgt.  I know I have had clients that have done that.  The loss of houses used as non commercial holiday lets or second homes in rural or seaside areas causes loss of houses to local people, high prices and worst of all get to pay only 95% of council tax which leaves the rest of the community to pick up the tab.  The street lights still have to be on, the streets sweep and bins collected. The only way is for legislation to make sure that only genuine holiday letting on a commercial basis is given more teeth by extending the letting season and requiring the actual involvement of the owner

Reading Rebeccas comments option B seems the way forward. However alot of my clients have genuine holiday homes but do stay in them at the beginning and end of the season to do repair work to get them ready for the letting season and 'putting' them to bed at the end of the season. Does this mean if they stay in a local B & B that while they did these repairs that OK but rather than pay out expenses that they stay on site overnight when doign repairs means they loose the FHL tax benefit.

Good luck with the treatment.

Surely it's about time for a complete re-think on the subject of 'lettings' altogether.

The system harks back to the old EIR rules ( for those of you old enough to remember....) and as so many people now make their day to day income from lettings of various sorts it's time to say that this really is a trade/profession and not 'investment income'.

It's very clear from the Tranquil Otter site that they are very hands on and are working in a business, if we are to keep up any level of holidaying in GB we really need the tax breaks for people to grow their FHL and improve the ecomony in their region.

My only contact with letting is for relatives now in a care home, funding their fees.

However on the FHL front, I feel that any changes "to close loopholes" have all the possibilities for "genuine/non-genuine" let-ers, as IR35 did for "genuine/non-genuine" self-employment.

I am sure I didn't dream this, the reason the FHL rules were being withdrawn was a doubt about them complying with European law. I would think that whichever party gets into Government (or whichever coalition perhaps) this would need to be addressed so my money is on a withdrawal of FHL status in Finance (no. 2) Bill 2010.

Malcolm Greenbaum

Director - Greenbaum Training & Consultancy Limited

IFRS, US GAAP, UK GAAP, UK Tax and VAT

The "not compliant with EU regs" was because the reliefs were restricted to UK properties only. That is, in a way, sorted because the reliefs have been extended to EU properties. You can go back a few years and pick up the reliefs if you want.

But who wants a subsidy to benefit the holiday homes in Tuscany belonging to the very wealthy? Somethings got to change. The simple answer if you weren't very interested was to scrap the whole thing, but maybe a more appropriate relief can be devised that will serve some real policy objectives.

The Government's latest FHL consultation paper has been published (27-July) and can be downloaded at:
www.hm-treasury.gov.uk/consult_holiday_lettings.htm

Subject of this consultation: Proposed changes to the special tax rules for furnished holiday lettings.

Scope of the consultation: The consultation is on proposals to ensure the tax rules for furnished holiday lettings are fully compliant with EU law and are better targeted at businesses that are run commercially for profit rather than for personal use.

The proposals are to:

• increase the minimum period over which a qualifying property is available to let to the public during a year from 140 to 210 days;

• increase the minimum period over which a qualifying property is actually let to the public during a year from 70 days to 105 days;

• restrict the use of loss relief from furnished holiday lettings so it can only be set against certain income from the same business.

• a loss from a UK qualifying furnished holiday lettings business should only be available to set against future profits from that UK qualifying furnished holiday lettings business.

• a loss from an EEA qualifying furnished holiday lettings business should only be available to set against future profits from that EEA qualifying furnished holiday lettings business.

The consultation seeks views on the impacts of these proposals, and is an opportunity to influence the detailed policy implementation.

The UK's self catering trade associations (WASCO, ASSC, EASCO, NiSCHA) along with other tourism bodies such as the WTA, England's Tourism Alliance, the Scottish Tourism Forum, will submit responses to the consultation paper.

Impact assessment: The consultation stage impact assessment is at Annex B to the document.

Duration: The consultation runs from 27 July to 22 October 2010.

After the consultation: The Government will publish its response by the end of the year and intends to implement the changes in the 2011 Budget.