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FHL Interest - Trade or Non-Trade?

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I have a company which lets out UK properties which qualify as both FHL and non-FHL. There is a significant interest expense which is split roughly equally between FHL and non-FHL. I'm trying to work out whether the non-FHL interest is trade or non-trade within the loan relationship rules.

An FHL is a subset of a UK property business for the purposes of CTA2009. For some purposes (such as certain CGT reliefs), FHL is treated as a trade (s264 CTA09). Since the LR rules are not listed amongst the sections in s264, my initial thoughts are the interest attributable to FHL is non-trading interest, as it is part of a UK property business which does not constitute a trade.

However, the losses of an FHL must be calculated separately from the rest of the UK property business, s65, CTA2010. s65 states that the company is "treated as carrying out a single trade which consists of every commerical letting of holiday accommodation comprising in the company's UK furnished holiday letting business". It then goes on to say that the company is treated as carrying out a trade the profits of which are chargeable under Ch2, Part 3 CTA 2009; i.e. as trading profits. s65 is however limited in scope and this "treatment as a trade" only applies for the purposes of Part 4 CTA2010 (i.e. the loss rules).

My tentative conclusion is that the interest is still treated as non-trade as it is part of a property business. s65 only treats the profits as chargeable as trading profits and does not require them to be calculated as trading profits, and the sections intention is to do this only so FHL losses are brought into the trading loss rules (with modifications).

Any thoughts and dissenting opinions welcome





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By Tim Vane
14th Jun 2020 21:31

Your analysis seems reasonable

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By Wilson Philips
14th Jun 2020 21:46

I do not dissent

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