Furnished Holiday Lets - Is there any update?

What is going to happen post April 2025?

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Jeremy Hunt announced in the March Budget that the tax advantages associated with FHLs will end in April 2025. Has anyone seen any advice yet from HMRC about the treatment of capital allowances post April 2025? My main two questions are:-

a) If there are losses which have been creating by claiming tha AIA can these losses still be carried forward?

b) Can WDAs still be utilised post April 2025?

I can make assumptions about the above but wondered whether I have missed any specific guidance. Thanks for any incite that can be offered or just confirmation that I haven't missed anything. 

 

Replies (17)

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By richard thomas
16th Apr 2024 15:56

No you haven't missed anything. I am directly affected by the loss carry forward point, and I find it inconceivable that come 6/4/25 any losses from 2024-25 will not be available against UK or overseas property business profits as the case may be.

In this connection I do not understand your reference just to losses created by AIA. My losses were not, but by renewals carried out during Covid when bookings disappeared.

How they will deal with CAs generally in the transition back to the normal property business regime is something I have no ideas about.

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Replying to richard thomas:
By plummy1
16th Apr 2024 16:18

Richard,

Thanks for confirming that we are both in the dark about this issue. We are now trying to get some clarification from HMRC and should I find anything out I'll let you know.

John.

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By Leywood
16th Apr 2024 17:24

plummy1 wrote:

incite  

Interesting choice of word, rather than insight.

Some disgruntled folk, so deliberate? Sorry, I couldnt resist!!

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Replying to Leywood:
By plummy1
16th Apr 2024 18:04

In hindsight I should have got insight right.

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By kdbr
17th Apr 2024 11:16

And another thought - what can we expect from local authorities on the question of Business Rates/Council Tax?

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By fawltybasil2575
17th Apr 2024 11:37

@ RT (your post of 16 April).

IMHO the "What happens to FHL Losses at 5 April 2025" point could in fairness be resolved realatively easily.

(i) After ascertaining the "UK FHL Losses at 5 April 2025" then relief for such Losses can be offest ONLY against taxable lettings income, from 6 April 2025, from those UK Properties, ie the "ringfencing" effectively continues only to the extent that such Losses are offset by taxable lettings income from those UK properties owned at 5 April 2025.

(ii) In identical vein, relief for "Non-UK FHL Losses at 5 April 2025" can be obtained against taxable lettings income, from 6 April 2025, from those non-UK properties owned at 5 April 2025.

IMHO it should not matter (ie fairness will still apply) whether, and to what extent, the 5 April 2025 Loss figures [for (i) and/or (ii)] include elements of Capital Allowances [that comment is only relevant of course, if at the 5 April 2025 transition date, a market value is required to be applied to the Capital Allowances -a potentially high Balancing Charge could arise if such market value IS required to be used].

Basil.

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Replying to fawltybasil2575:
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By richard thomas
17th Apr 2024 18:51

Well, yes - that is a possible approach and, in a case like mine and many others where only one property is involved, has the same effect as a general carry forward against all UK or overseas property income.

But I would say that since property business losses, even if derived from only one property, can be carried forward against profits of all properties, it would be fairer not to restrict the carry forward of FHL losses, but this is a political choice which (I hope) HMRC will be putting fairly to Ministers.

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By AdamJones82
17th Apr 2024 21:56

Am in the same boat too as got a large AIA claim for a client for FHL for the 2023/24 Return which will create a loss

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By fawltybasil2575
17th Apr 2024 23:36

@ RT (your 18.51 post today).

You say (in response to my last post):-

“Well, yes - that is a possible approach and, in a case like mine and many others where only one property is involved, has the same effect as a general carry forward against all UK or overseas property income”.

I must respectfully disagree and advise that, in a case (like yours) where only one FHL property is involved (ie with FHL losses at 5 April 2025) my suggested rule does not necessarily have the same effect as “a general carry forward against ALL (emphasis added) UK or overseas property income”.

Taking for example a case where the UK FHL Losses (on the one property, as in your case, albeit the same would apply if there were two or more UK FHL properties) were say £8,000 at 5 April 2025, but the lettings income from that one property was say £3,000 in 2025/26, that property being sold in 2025/26, then “my suggested rule” would restrict relief on the £8,000 losses to £3,000, ie by £5,000.

[The same principle of course applies if (say), to take another example, the 2026/27 lettings income on that one property was £1,500 before it was sold in 2026/27, in which case the £8,000 Loss at 5 April 2025 is restricted by £3,500 to £4,500].

Indeed, that very restriction is the rationale behind “my suggested rule”.

Basil.

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Replying to fawltybasil2575:
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By richard thomas
18th Apr 2024 11:46

@ FawltyBasil

Your post of 23.36 (17 April) has caused me to give rather more attention to what I had said in my post of 16 April 15.56 and yours of 11.37 yesterday.

I took your statement that the suggestion you put forward about the treatment of the balance of any deemed trade losses under s 127 or 127ZA ITA 2007 available to carry forward at 5 April 2025 was a “relatively” easy resolution of the OP’s concern was implicit recognition that what I said in my 16 April post was an even easier solution, because it contains no restriction of the type you envisage. (I wasn’t actually putting it forward as a thought out solution, merely a view that it would be inconceivable that there would not be savings or transitional provisions allowing an effective loss carry-forward to continue, but I am happy to adopt it as my preferred solution).

I was assuming that in terms of legislation, the drafting would provide that any amount of deemed trading losses available to carry-forward at 5 April 2025 would be treated as an amount of carried forward UK property loss or overseas property loss (in addition to any such actual loss then so available).

Your suggestion would require drafting of a limitation on such use of the former FHL losses, but not of any actual property business losses, so would require a priority of use rule, and would have to specify that the former FHL losses could only be set against profits arising from the same accommodation or part of accommodation that the former FHL losses arose from.

Clearly if a person had at 5 April 2025 both former FHL property and other property in each of the UK and overseas, your rule would be restrictive if the former FHL loss exceeded the profits from the relevant accommodation in 2025/26 but there were other property profits of the year which could be reduced by a loss.

On the other hand it would allow losses to be set against the profits of the relevant accommodation even if in 2025/26 the accommodation would not have been an FHL because of inability to meet the conditions and there not being a period of grace, so to that extent is not a restriction.

When I characterised your proposal as equating to mine in a single property case I meant implicitly that that would be the case while the property business consisted solely of that single building. You say it is not the same, because the single building may be sold (and implicitly the business continued by acquiring other land for the purpose of generating a profit which my proposal would allow to be covered by losses). That is, I agree, a difference and one I did not have in mind.

I think then that HMRC might be attracted to your proposal especially if they remain in the 2011 mindset on the subject of FHLs. By that I mean the mean-spirited approach they took when they were forced by EU law considerations to grant FHL status and reliefs to overseas properties within the EEA. In order to prevent use of losses from EEA FHL businesses sideways against other income, the 2011 changes ensured that UK FHL losses could no longer be used in the ways available to other traders except to be carried forward.

Your proposal would be even more restrictive in that sale of the FHL property would bring loss relief to an end even if the business continued by using a new property in the same way. Mine would open up the possibility of ex-FHL losses being set against non-FHL profits eg from long-term residential letting, commercial letting or even sporting rights.

It may be that the Government will choose a via media, but I think that would be the most complicated to draft, and might involve still using the complex FHL conditions for a limited purpose. I think it would be very difficult to estimate the cost or yield of any proposals in this area for dealing with future losses, so the choice ought to be primarily based on administrative convenience and the new found and expressed interest of the Government in tax simplification.

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By fawltybasil2575
19th Apr 2024 10:48

@ RT.

May I pick up on a couple of the points in your email yesterday at 11.46.

Re your paragraph commencing “Your suggestion”, time will tell whether the legislation includes the “priority of use rule” which I personally believe would achieve the right balance between fairness and simplicity.

Re your paragraph commencing “On the other hand”, I appreciate that my suggested rule would enable the FHL loss at 5 April 2025 to be offset against lettings income from the same property/properties after 5 April 2025, even if such property/properties did not then qualify under the (effectively then redundant) FHL rules – as ever, whatever legislation is introduced must achieve the “balance between fairness and simplicity” goal which I have referred to above – as I also mentioned above, “time will tell”.

Whilst your proposal has the benefit of extreme simplicity, it IMHO could be too generous. My reason for that opinion is that your proposal conflicts with one of the tenets of the existing FHL legislation (ie that “FHL Losses” cannot be claimed against “Non-FHL” lettings income) since it potentially grants relief for FHL losses (for one or more – potentially several - tax years up to 5 April 2025) against “Non-FHL” lettings income from 6 April 2025 onwards.

Expanding upon my “too generous” comment above, and as ever best by way of example, I feel that your proposal could create at least perceived unfairness between taxpayers – a taxpayer who, in the 2024/25 tax year, discontinues their “UK -FHL” income [whether by way of sale of one or more properties or not complying with the "qualifications" (eg the "number of days availability")] might have unrelieved losses of (say) £40,000 at 5 April 2025 – let us say for example that there is only one “UK-FHL” property, which is disposed of on 31 March 2025, with unrelieved Losses of £40,000. Another taxpayer, also with on “UK-FHL” property, disposes of it in the 2025/26 tax year (possibly even shortly after 5 April 2025) with 2025/26 income from that property of (say) £500. If your proposal were adopted, then the taxpayer who disposed of the property shortly after 5 April 2025 could be, especially if they had substantial other lettings income, at a substantial advantage to the taxpayer who disposed of their property/properties in 2024/25.

Following on from my previous paragraph above, there is of course a potential “tax planning” point here, inasmuch as (if your proposal were to be accepted) a taxpayer would be highly recommended to postpone selling the property at issue beyond an intended sale date of early 2025.

Basil.

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Scooby
By gainsborough
06th May 2024 14:17

Attaching the CIOT's recent letter to HMRC for reference here, which contains many of the questions still to be answered....https://assets-eu-01.kc-usercontent.com/220a4c02-94bf-019b-9bac-51cdc7bf...

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Replying to gainsborough:
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By richard thomas
06th May 2024 14:42

Thank you for posting this for the benefit of non-members - it is a thoughtful and balanced submission.

I have wondered for some time about the legality of HMRC's treatment of hotels and B&Bs/guest houses in the light of s 4(1) ITTOIA. The whole border is a mess.

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By fawltybasil2575
06th May 2024 15:35

@ gainsborough.

Thanks from me too, albeit I have not read the Report letter in its entirety, but I was of course most interested in the "FHL Losses at 5/4/25" aspect [per the "Treatment of Un-used Losses" section of Para (3)].

Re that section, "Option 2" is (unsurprisingly, for the reasons which I outlined above) one which I favour as the one which I believe achieves the right balance between fairness and simplicity.

As to the thought, in the Report letter, that the "separation" burden for the taxpayer (ie separation between FHL and non-FHL properties) might be too onerous, I would hardly expect this to be the case (especially since taxpayers with properties both "within and without" the FHL definition would ALREADY have had to separate figures for "within" from those "without".

As to the perceived twin tasks of wording (i) the legislation and (ii) SATRs, frankly I would have thought that these tasks too would be relatively straightforward, after careful thought by those charged with those tasks.

Time will tell whether "Option 1" (which I recall is favoured by RT) or "Option 2"; or "Options 3,4 onwards, finds its way into the legislation in due course: I suspect that debate over all the other aspects at issue may well lead to postponement of the legislation.

Most very definitely, with no false modesty, CIOT did NOT consult me, nor indeed will they probably have heard of me, before or during preparation of that section of their Report (which I shall consider more fully when time permits).

Basil.

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By More unearned luck
06th May 2024 17:41

Here is a briefing prepared for MPs for a debate last week. This contains useful background info:

https://commonslibrary.parliament.uk/research-briefings/cdp-2024-0088/

That debate:

https://hansard.parliament.uk/Commons/2024-05-01/debates/6D97FDD8-31E7-4...

Nigel Huddleston (the Treasury minister) gives next to no idea of the Government's thinking on transitional measures.

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Replying to More unearned luck:
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By AdamJones82
06th May 2024 18:34

They've probably not even thought about that before announcing the measure. Too quick to get headline budget announcements in the dying throes of their Government.

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Replying to More unearned luck:
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By FactChecker
06th May 2024 19:03

"Since the measure (to scrap the FHL regime) is not included in the Finance Bill currently before the House, HMRC has not yet published an impact assessment of the measure."

Says it all really ... whether they don't believe it will make it to another Finance Bill later, or simply don't care / aren't competent, the amount of effort put into moving this forward is the only thing currently worthy of the label 'net zero'!

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