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Furnished Holiday Lettings: your views needed

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11th Oct 2010
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The consultation period for the changes to the Furnished Holiday letting regime ends on 22 October and AccountingWEB will be submitting a formal response to the consultation. Once again, we have had some comments on previous items we have run on this topic, but would like to invite your comments and thoughts on this topic to finalise our response. See the consultation document for more background information.

Summary of proposals

The qualifying conditions for furnished holiday letting treatment are to be modified to restrict the application of the favourable “deemed trading” rules. The rules will apply to all qualifying properties throughout the EEA. Many of the existing conditions remain unchanged, such as the requirement that the business is carried on commercially with a view to profit and a ban on longer term occupation. However the main changes affect the qualifying periods :

  • The period for which the property is available for letting will increase from 140 to 210 days per annum, and
  • The period for which the property is actually let will increase from 70 to 105 days per annum.

There have been mixed views expressed on the change. For operators of sites with a number of properties in one location it is likely that properties would be available for letting for most of the year (subject to refurbishment), but for those with a single property which is a holiday home available to the family for some of the year the 210 days will reduce the time it can be occupied by the family. In any event making a property available for letting is probably not the real issue.

The period for which the property is actually let proves potentially more of a challenge. In my previous article I looked at the impact of early / late timing of Easter and also raised concerns about other issues which would impact providers in rural areas of the UK – such as an extended period of bad weather (think back to the floods in the summer of 2007) or an outbreak of foot and mouth disease. Although it is likely that such extreme circumstances would provoke a response from HMRC that might relax the conditions it is not appropriate to be going into a new regime which starts on the premise that ad hoc changes might be necessary at times.

Other proposals

The proposals for loss relief represent a significant curtailment of the current position. In future losses on an FHL operation would only be available to offset against future profits on that FHL operation. This is a significant restriction from the current position which allows both a carry back of losses against earlier profits and the sideways relief of losses against other income. This aspect is probably of the most concern in extending the FHL regime to the rest of the EEA, and it is clear that in restricting the loss relief available the intention is to reduce the cost of FHL treatment.

In my view, for a commercial operator this represents a significant restriction. Refurbishing and refitting regularly goes with the business – operators really need to present a “hotel standard” experience for guests. The cost of upkeep and replacing furniture etc (to which capital allowances apply) combined with a summer of restrictions due to floods or similar could easily show a substantial loss – which may take many years to set off under the new proposals. No operator goes into this business intending to make a loss (and if they did their relief would be restricted in any event under current legislation) so this new restriction seems unfair. Although retaining some form of the current relief could potentially be costly, my own suggestion (below) would, I think be a better alternative.

There is also the issue of capital allowances, which would be available if the property letting qualifies for FHL treatment and not if it did not. This presents the complex issue when more than one property is let of segregating expenditure and running several pools – see my earlier article for more on this extra complexity. On reflection this additional complexity makes this a non starter.

Commentary

My own view is that this regime and the proposed changes are trying to retain something that is in fact past its “sell by date”. This hybrid regime does nothing to simplify tax and will lead to further confusion. There is also the very real possibility that some operators will provide additional services (such as meal packs) and then arguments about which part of the operation is a trade will follow.

Let’s return to the principles underlying the review and proposed changes (from para 2.8 in the consultation document) :

  • Make sure the rules meet our obligations under EU law (that is, we must not discriminate against non UK operators);
  • Continue to provide support for commercial businesses (good to hear – tourism is an essential part of the rural economy), and
  • Ensure that changes are affordable.

A different approach

Rather than continue with the artificial designation of a “deemed trade” in my view it is high time that we dispensed with this and moved to a “full trade” versus “ordinary letting” classification. Where a furnished holiday letting business meets the required conditions – which would need slight amendment – it is classified as trading with all that comes with that. The downside for operators is that they should also pay Class 4 NIC on their profits as they benefit from trading treatment. This is particularly important in view of the planned restrictions on the offset of losses in the future, and the fact that my suggestion would give operators unrestricted loss reliefs (as they have now). The additional revenue from Class 4 would offset the additional cost of trade reliefs and for the operators they now have cast iron access to both CGT and IHT business asset treatment.

All other operators would move to property income classification – and indeed may still be better off than under the proposals for loss relief – and this could reduce the cost of the proposed reforms still further as the right to claim capital allowances would cease. In my view the proposals for the treatment of capital allowances under the new regime add significant complexity and should not go ahead – but in fact would be essential if this artificial designation as “sort of trading” goes ahead.

The conditions would be very important as they would control access to the trading route and therefore might be a little more restrictive than now – given the generous treatment on offer. This would present no issues for the commercial multi property operation but exclude those who are casually letting their holiday home. They will still be able to claim a range of expenses against their income but not the more favourable treatment available to commercial operations. So the new conditions might look like this :

  • The property is in the UK or EEA (as now)
  • The business must be carried on commercially with a view to profit (as now)
  • The property is available for letting as holiday accommodation for a significant part of the year – we might agree on 300 days – leaving around 10 weeks for refurbishment and repairs if necessary (obviously this is a significant increase over the current requirement)
  • The property is not occupied by the owner (or connected persons) unless at commercial rent or the occupation is incidental to the letting activity (such as being on site to carry out or supervise redecoration if the owner lives remotely from the business)
  • The current restriction on longer term occupation could remain – or the availability test might in fact make this unnecessary as the availability is for letting as holiday accommodation, and longer term letting would preclude this.
  • I am resistant to the idea of a minimum actual letting period as this introduces the complexity that as the tax year progresses, the status of the property would not be known until the end of the year. This would mean that businesses would not know at the time they incur expenditure what the treatment of that expenditure would be. However, it may be considered that a minimum letting period would be essential to act as a barrier to the trade treatment; if this is the case, I would argue that it should be considered on an average of three years actual letting, and that where multiple properties were on one site (such as a range of farm outbuildings comprising four units) the average of all should be used, not each individual property.

I am keen to have a regime under which we have a clear separation between commercial operations and casual holiday letting; I believe that the above go a significant way towards that. It may be that trading treatment is only available if there is more than one property at the site – it would be interesting to hear what members think.

Please do give us your views on the Government proposals (or respond directly) and my alternative approach – many of you will have clients with a holiday home which may or may not qualify under the new rules and should be ready to advise them. We would also particularly welcome comments from operators about my suggested alternative route. The current proposals will make that job significantly more complex. Thanks to all who responded to the last article - I have your comments and will include these in our response.
 

Replies (19)

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By dnicoll
11th Oct 2010 12:47

sensible approach

A sensible approach, Rebecca

The raising of the minimum days of actual let is an area of real concern with some of my clients with property in rural areas (as you correctly point out). Given the difficulties rural businesses face already, adding extra hurdles to them will be counterproductive, and will reduce the amount of accommodation available at a time when the UK tourism industry needs a boost.

I don't agree with the point you make about possibly limiting it to operators with multiple properties on one site - this would very clearly disadvantage some of the smaller farmers and smallholders I know who run FHLs.

I am especially concerned that the Capital Allowance changes proposed would add unnecessary extra complications to the taxpayer's affairs. Either thet are plant and machinery (and so in the general pool) or they are not. Artificial divides based on the type of business opens up all sorts of precedents - and the Treasury does have a penchant for adding complexity where it is not needed.

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Character from Adam Sandler film "50 First Dates"
By 10sectom
11th Oct 2010 13:10

FL Rules

Rebecca,

Your alternative proposal is excellent. We need the sideways relief and the averaging of properties on one site. I would prefer the long let restriction to be dropped. Even for commercial holiday letting businesses, we need to have flexibility in the winter to keep up occupancy. The contract is still a weekly let, but there should be no restriction on the length of let to one customer.

Rgds

Tom

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By jimbobdanglan
11th Oct 2010 13:16

Holiday Lets

A well thought through article - if HMRC are worried about persistent sideways loss relief claims, then why not introduce a 6 year rule in the same way as for farmers/market gardeners.

The 300 day rule seemed a bit harsh though - in our locality, 8 months is the normal holiday season (march to october) and it is quite often not economic to open from November through to February, given the low returns, and added costs of heating etc.

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By mikesole
11th Oct 2010 13:20

Increase in qualifying days

Much of the UK is not an all year round holiday destination. Many landlords let their properties to "holidaying tenants" for 6 months but also have a long term let of 6 months throughout the winter. The property would currently qualify as a FHL, but would not if the qualifying days are increase.

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By mydoghasfleas
11th Oct 2010 14:07

A sensible approach?

I have no axe to grind on this one. 

However, I do get concerned at the amount of time HMRC and politicians spend on what is a relatively small sector.  I feel the tinkering arises because there is the perceived abuse from personal use of the property and losses generated by token efforts to let in order to wash out personal expense.  Is that the elephant in the room?  If it is, it needs to be spelt out. 

Then the answer could be a formula that loads the personal use element where losses arise.  Allow the expenses such as advertising, maid service in full, and restrict interest/maintenance costs by reference to personal use/under-renting calculated at at x times the maximum letting price in the season.  That way, the professional landlords, whose losses should be rare because they are in it to make money, get the relief in full.  The second homers get relief on a restricted basis. 

This could deal with the losses and leave the rest untouched meaning no changes to the days available/days let.

Alternatively, have done with the distinction from the normal property business.  Playing around at the edges will always result in poor compromises.  The suggestion of the more than one property is nice in principle but in no time at all, you will have joint owners of two properties rather than single owners of one each.

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By martin barron
11th Oct 2010 14:23

FHL

Many of my clients who operate FHL's do so in remote parts of the UK (WESTER ROSS, for example) and the need to keep up with maintenance and repair is often carried out by local contractors. The benefit to the local community is obvious and the latitude with tax relief means that these repairs are usually carried out as soon as they are identified instead of being deferred indefinitely.The proposed restrictions on loss relief would, in my view, put pressure on these decisions to the immediate detriment of many local communities in remoter places.

 

Martin Barron FCA

Ramsbottom

Lancs.

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By Rufusbusy
11th Oct 2010 15:33

Effect of changes to FHL rules

I am an accountant with one FH which I let.

 

The changes in the letting periods will make no difference to the serious letter'

The changes to the loss-offsetting v other income could be disasterousin the event of  "Foot & Mouth or Floods" as you suggest.

 I believe that there would be a mass withdrawal of  properties to let by those who currently offset losses from FHL against other income, as they only use the current rules to reduce the cost of their holiday accomadation.

i.e 20000homesThis would boost the direct tax take but could be disasterous for the economy of some areas

Every FHL spends money in the local shops and employs the local tradesmen. An owner who only goes for afew weeks a year does not keep the property in such good condition as the FHL owner

 

R.F.Stevenson

 

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David Kirk profile image
By David Kirk
11th Oct 2010 15:53

Furnished holiday letting consultation

The main problem wiht the Government proposals is the increase in letting time to 105 days, which some properties would struggle to make (particularly in coastal areas where the lets are dependent on children - ther is not much of a market for these in term-time.  This leads to a knock-on problem which is that a property may be an FHL one year and not the next, and then come back in again the following year.  Under such circumstances losses on one property would not be available for offset against future profits on the same property, which is invidious.

I think that there is a solution which would answer all the Government's concerns and is really very simple, which is for taxpayers only to have one letting business, which may include holiday and non-holiday lettings (so that FHL losses can be offset against other property profits, but not income generally), and to add an additional test for an FHL which would be that the property must be available for letting in some form (i.e. either holiday or non-holiday) for at least 300 days a year (to stop people using it as a second home - this would be much better than tampering with the existing limits).

I think that introducing class 4 on a deemed trade would not have public acceptance and would lead to people trying to make sure that they did not qualify as FHL's, whcih would be bad for tourism.  Please also remember that a good number of people affecetd by this will be filling in their own tax returns without an agent - the fewer and the simpler the changes the better.

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By mariangibson
11th Oct 2010 16:51

Furnished Holiday Lets

 I have a number of clients with FHL and they are all genuine businesses - the properties are never lived in by the owners and are mostly available for letting all year. However, due to location, a few of them either 'close' over the winter months or are made available as winter lets for longer periods and I don't see that this should invalidate the fact that they are genuine business properties. Nor should the fact that there is only one unit - planning restrictions mean that several of my clients are only allowed one unit on a property regardless of how many they would like to own and run.

I agree that there should be a separation between those FHL that are genuine businesses or trades and those that are casual lettings of second homes and if that means paying Class 4 NIC on profits, then so be it - that has always seemed a big bonus for the self catering trade as opposed to B&B's. I run both a B&B and FHL and the difference in the tax regimes seems far greater than the difference in the actual businesses.

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By Adrian Everton
11th Oct 2010 20:37

Furnished Holiday lets abroad

 I have responded to HM R&C's request as follows:-

"My wife and I own a holiday villa in Spain, which we rent out on a commercial basis from January to December, so we are available to rent for 365 days a year apart from the personal use referred to below). We are on over 50 websites, mainly free, so we feel that we are getting the maximum exposure to the rental market. We do, of course pay for several sites.

 Nevertheless, we rarely get guests staying between November and May. This year we have struggled to get to 14 weeks. I devote a lot of my spare time updating the websites, using key words and ensuring that our own website is on the first page of Google, more so than many other villa owners. I know from other friends that have villas in the same region as ours that their own bookings are waning but I guess that they do not spend as much time as I do on the sites, etc.

Apart from last year, which appeared to be exceptional, we have made a loss every year since 2002/03, after deducting the interest etc to purchase the villa. However, we do spend about 6 or 7 weeks at the villa, mainly in the spring and autumn when the demand for the villa is low.

So, for the minimum period to be sharply increased to 15 weeks will be a real blow to villa owners in mainland Europe, where there are over 77,000 advertised Furnished Holiday Lettings (on the major paid for top 4 UK sites, albeit some with the same advertiser) with similar, or worse lettings experience and most will only own one property. I and my wife would, therefore be totally against an increase, 12 weeks would be far more appropriate.

We are also against withdrawing the loss relief against personal income for individuals as we, as well as most individual holiday owners are unable to offset the losses against any other similar property (which we do not own)."

We obviously try to run the letting as a profitable business, as that is why we bought the property in the first place. 

I totally agree with previous comments, that in some areas it is not possible to rent out for 365 days a year. Being available is not the same as obtaining bookings!

We don't accept long term rentals as we feel that tenants may get lazy after 3 weeks or so, in keeping the property in good order.

While we stay at our villa we carry out essential repairs and maintenance.

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By rosemoor
12th Oct 2010 02:57

Not entirely convinced - a business view

 Dear Rebecca,

Thank you for doing a lot of good work on our behalf. I say this as someone who owns and runs nine holiday cottages on the remains of an old Victorian country estate in south west Wales. Our “industry” is mainly made up of very small enterprises, mostly run by very individualistic people (possibly the very reason they are in this business!), who usually have great difficulty in getting their corner defended and are usually not that good at collaborating with colleagues, so this type of help is very much appreciated.

As to the actual line of thinking in this second piece of yours and some of the responses so far, I must say I’m not entirely convinced. There was more to my liking in your first article on this subject.

The size of our business puts us squarely in the “larger set-up” category, which in your first piece you advocated should be treated for what it is: a trade. Cannot agree more. This was the case pre 1984, and would have been the case had the current FHL rules been repealed by the previous government. It so happened that – unbeknownst to us at the time, and anonymized – our business was discussed with representatives of HMRC in the run up to that repeal, during which they agreed we should be treated as a trade for tax purposes. Obviously this would have suited us; to preserve our treatment both pre and post 1984 we feel businesses such as ours should be lifted out of the scope of FHL entirely. For this to happen without too much case-by-case negotiation, a list of benchmarks should be drawn up, which could require something like 6 or 7 from the following, with certain items always required:

 1.     Multiple units (4-5-6+? – up for discussion);

2.     Planning consent for conversion to self catering;

3.     Registered for VAT;

4.     Business rates are paid;

5.     Grants have been received to convert to self catering;

6.     Other facilities are also provided such as a laundry, games room, swimming pool or provision of food;

7.     The properties are all at the same location or area;

8.     The owner or his manager is involved in the day to day running of the business;

9.     Is the sole or major source of income for the owner.

(This list is not exhaustive, and some items are more contentious than others. Grants given in this context, for instance, are a clear indicator of the intention of use of the property. But these could actually be seen to invalidate trading business claims: a potentially profitable business shouldn’t need grants to get/keep going – but this is another gripe of mine, when a local entrepreneur gets £16mln of government money to start competing with us.)

Like you, I am equally keen to have a clear separation between commercial operations and casual holiday letting (as per the above). However, I think there is no getting away from the fact that there are many operations in this sector that can only be described as “semi-commercial” at best. And there are also those that offer just a little more than casual holiday letting, perhaps also reaching towards “semi-commercial”. To differentiate between them, these could be subject to “FHL-new”, or failing the test, property income taxation.

I would be opposed to granting everyone full trade status, even at high level requirements for availability (about which more later), as this will not address one of the major problems: sideways loss relief claims. There is no case (not even for 6 years, as one respondent advocates) for UK taxpayers essentially subsidizing what are very nearly all second (holiday) homes on the continent, dressed up as a business. To my mind there is also very little of a case for sideways loss relief claims if the FHL it concerns is “just something on the side” in the UK: for that I know far too many single unit operators who gradually do up their second property and have virtually all costs subsidized at 40 (now perhaps even 50!)%. That is not what these rules should be about or allow.

As to your remarks about potential problems resulting from too strict availability and occupancy criteria: it is impossible to legislate for any and all eventualities, and there will always be situations where ad hoc changes will be necessary – even with the most well-drafted rules. I will say, though, that a requirement of 300 days would be very problematic, even for us, who let basically all year round. 65 days for our own holiday (it’s pretty difficult to find someone to take over the running of this type of business, even if one would want to) and refurbishment is really far too little. Major works can easily take three months, especially if one has to be careful with the money or has to do a lot oneself: a (any) job can always only combine two of the following three: quick, cheap, good. If you want good work, and don’t have unlimited funds, time will automatically have to give.

What to my mind is essential in any FHL-new is that qualifying conditions, whatever they will turn out to be, should always be tested against for the average of all units within a business; never on a unit by unit basis. Provided the conditions are reasonable (as 210 and 105 days would seem to be, on the whole) this will take much of the sting out of the proposals. Yes, single operators will still have to get to 15 weeks, which may be onerous in certain cases, but mostly not undoable.

Incidentally, if they would turn out to be undoable, in many cases I would probably blame too much supply. Over the past 10 years or so, the average occupancy rates per unit have fallen considerably, even for those who are in it for purely commercial reasons. (Contrary to what some respondents seem to think, even purely commercial operators cannot conjure up bookings out of thin air.) We, and many like us who have been in the trade for even longer blame this for a considerable part on the increased number of properties available. Many of these are essentially second homes, in effect only competing in the main season, but taking full advantage of the current FHL rules. Some of the responses so far seem to say that a reduction in the number of properties available for let would be to the detriment of the tourism industry. I think this is very much up for discussion. An industry with oversupply – something that is now very much beginning to be the case in self catering since about two-three years, with even peak summer weeks letting only with great difficulty – can never be very healthy. It may initially seem like a good development for customers, but if funding restrictions eventually result in reduced quality, nobody will be any better off, and tourism will suffer as a consequence. I would venture that the current FHL rules have helped fuel the boom in converting barns, outbuildings, second homes, etc., and I sincerely doubt that was ever their intention. Increased competition from single unit operators for whom the revenue is non-essential is definitely hurting us, whose sole income is derived from our business. I am not saying competition should be limited – far from it – but it should take place on a level playing field. FHL has made entry more (perhaps too) interesting for many, and in the process other elements such as VAT and Business Rates and conversion grants come in to very much unlevel the field (see my comments on your first article).

Others seem to say that loss of FHL status will result in losses to the rural economy, as landlords invest more than second home owners. Maybe so, but I doubt someone who loses his FHL status would immediately stop letting completely. Money coming in to offset costs would seem to be as welcome in that situation as before. But perhaps I am wrong, and loss of FHL status would lead to properties no longer being let, being run down and/or put on the market. But then, if that would turn out to be the case, HMRC would be vindicated in that FHL is/was being abused.  

My FHL-new would not have sideways loss relief, but could have carry back of losses, and could also have loss relief of old losses when a business is no longer qualifying (i.e. has become a property business) against profits from the (now property) business that previously qualified as an FHL business. If that business should no longer be there due to divesting, then no loss offsetting would be applicable anymore. If the business re-qualifies after (say) a year, everything is back to what it was.

As regards capital allowances, and always provided you accept averaging of qualifying criteria within a business, this would mean two entries for Plant & Machinery on the balance sheet, as opposed to one under the current rules: one for P&M outside the dwelling(s), and one for P&M inside the dwelling(s). Not being an accountant my understanding of things may be wrong, but this fact, and the treatment of these pools, would seem to me not too much of an administrative onus.

For those of you who would like to discuss these matters in more detail, we can always be reached through our web site.

John Meulendijk

 

www.rosemoor.com

 

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By Trevor Scott
12th Oct 2010 09:18

What about tax simplification?
It seems as though, surprise, surprise, accountants have forgotten about tax simplification and that they will profit into the bargain.All you need are two options for people with hoiliday lets to choose from.1.       If one property then you can opt into a flat tax being say 20% of FHL income.2.       Otherwise run the entire enterprise as a normal business/trader, any “own use” at full market rate.

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By cplww
12th Oct 2010 11:02

Holiday Lets

I agree that a clear distinction should be made between commercial enterprises and those that  merely wish to reduce the cost of owning a holiday cottage.  A clear definition has to be arrived at to separate the two.  There will always be a grey area where someone falls the wrong side of the line. But in those few cases, if they are commercial, then it is in their hands to alter the operations so that they fall on the right side of the line.

Perhaps the line should be set at where the owner can demonstrate that in the previous x no. of years the business generated sufficient profits to equal minimum wage or some other measure. i.e that the person could survive on the returns generated by the business without recourse to other sources of income.  This would demonstrate to the HMRC the it was a serious business.  For those jumping in with both feet, who buy several properties at start-up, another measure could be agreed.  Perhaps if a multiple of the threshold is reached in the first/second year of trading  then no further proof is required.

Equally, where net profits fall below the threshold in say three years on the trot. they fall out of the commercial zone until they can comply again.

 

 

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By espionage
12th Oct 2010 13:42

Holiday Lets

 

All the rules and restrictions are anti-avoidance rules to stop people with a second home franking the cost against their taxable income. Property income used to be trading or investment income depending on the level of activity.

Scrap the whole FHL regime and get back to basics.

 

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By Jaquin
13th Oct 2010 08:56

Apportionment of HL

Holiday Season - Trade income 

A holiday letting purpose is actually a dual purpose.

One for owners to relax another is to earn income most of the time.

We should be fair to tax them accordingly.

80% (8months) should be deemed trade income. If they dont run business, they should be taxed and get relief at the same time according to days they utlised the HL in favour of peak period.

20%(4months) is reserved for low season, owners retreat and repairs.

If the owners wish to take a holiday during the Peak season. be taxed and get relief on holiday letting in their personal income tax if they dont exceed 28 Days in a year (7%)

 

 

 

 

 

 

 

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By robertlittlefield
13th Oct 2010 11:20

Furnished Holiday Lets

Lets Keep This SImple

I believe Rebecca's proposal fails on the admisnistravie burden count (3 year average is suggested) and on the failure to recognise the beneift of purchase of FHLs.

I cannot comment on whether the rules are out of date, but we must acknowledge that a purchase of an FHL will stimualte the economy of the community where it is sited, whether it be the local decorator who refurbishes, the estate agent who sells the property or indeed the supplier of soft furnishings!. Obviously this creates initself tax revenues (and my understanding is the country is quite desparate for these at the moment)

I think the initial suggestion of slightly tighter qualification is fine, but do not agree with the total exclsuion of the favourable loss relief which I would suggest is another "Green Eyed Monster" tax reaction.

Instead I feel the self-employed suggestion of Rebecca's has some merit, but for simplicities sake can be applied as follows.

Default position standard income form property, however if you want the self-employed tax benefits you need to register as self-employed thus sifting the wheat from the chaff so to speak!

There you go problem solved!

Robert J Littlefield ACII AFTA ATT

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By PACraneFCA
14th Oct 2010 11:16

Proposed treatment of FHL

I agree totally with Rebecca's views.

We are a practice in Cornwall with some clients who operate a site of several units, others who are farmers and have developed barns for FHL to give them additional income and many on the Isles of Scilly who were flower farmers and with this trade being virtually killed 20 years ago had to find another source of income so built chalets for FHL.

The minimum number of days for letting is clearly set by someone who knows nothing about tourism - how trends in holiday destinations change, how the weather affects the situation, as does the price of fuel etc. The small farmers in rural areas who struggle to make ends meet farming, rely in the income of their FHL to pay for the food on their tables and for their clothes in some years they may not meet any minimum but this would not mean they are not trying to attract more tourists and rarely are these units used for family or friends.

All of these classes of FHL run it as a business, are on site 24/7 and provide a wide range of additional services which clearly are not what an investor would, or could, do.

 

Peter Crane FCA

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By Helen Recchia
21st Oct 2010 09:33

FHL

We have 4 eco friendly holiday lodges which we have available for letting 52 weeks /year our intention has always been  and is still, for it to be a commercial business with a view to profit. We are still making losses 5 years into trading. The occupancy is growing year on year and there is a substantial amount of repeat business. The occupancy is running at just less than 50% (26w). In all our planning marketing research and local statistics indicated that occupancy should be 32w. We are not there yet and so have had to subsidise the business.  In addition we both have full time (although not very well paid jobs) and run the FHL business around these and at the weekends.

My concerns for the future are not how long the properties are available for letting ( as that is the business) but how long they are actually let which is so dependant on the state of the economy, market ,weather etc we are in a rural location and had minimal occupancy between Dec 09 and May 10 despite having central heating etc.

My other concern would be the treatment of losses I have been able to use these against my other income.

Within 4 years we expect to be in profit and hope to be able to offer employment for others and even expand providing jobs and facilities in the rural areas. We will struggle if we are unable to offset these losses against our other income. Losses can arise at any time so I think the losses should always be available for offset against other income.

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By Arm266
25th Oct 2010 16:13

Furnished Holiday Lettings

Rebecca,

May I venture to suggest that a high proportion of Furnished Holiday Lettings are static caravan hirers, who support the local tourism by providing accommodation to prospective tourists.  In many rural areas, those mainly sought by tourists, the loss of caravan accommodation would seriously damage the local tourist economy and even the general economy of the area.  No accommodation = no tourists!  Such areas have minimal bed and breakfast or hotel accommodation and even that which is available is reknowned for being out of the financial reach of most families.  So much for the declared object of protecting tourism!

Most caravan hirers are balancing on the edge of making their businesses pay, with heavy site rents and other charges, all liable to VAT.  Many are dropping out of caravan ownership each year, without the loss of FHL incentives, and this loss would increase the drop-out to an avalanch; I know this as I specialise in Caravan Hire tax.  The knock-on effect on holiday parks and other local amenities would be considerable. 

To me the latest proposals are just HMRC ways of getting round the Conservative's actions in forcing the dropping of the Labour proposals to totally scrap this scheme and are just tinkering with what is, after all, small beer in the context of overall tax revenues.  The effects of such changes will create a much higher loss of tax and VAT revenues, when the wider effect is considered.

To static caravan hirers, most of them individuals with a single unit on a company owned Park, the most important thing keeping them in caravan hiring is the ability, in the earlier years, to set their start-up losses against their PAYE or self-employment incomes.   Static Caravan Hire has been long recognised as taking several years to become viable and most such owners don't have the capital cash flow to subsidise that business until it gets going; changing to a basis where losses are carried forward against future profits doesn't change the overall tax position, only saves refunds at the expense of future tax revenues.

It is clear that the more vocal people have been local farmers, who are diversifying into a side-line letting spare property on their farms [a relative minority]; why should they complain about caravan owners hiring their caravans out as a sideline to their day-to-day employment, when they are doing the same with their spare buildings.  However, they also complain that it is very difficult to extend the season, due to weather conditions, and the need to maximise letting within school holidays, particularly with Government clamp-downs on term-time holidays for school-children.  Such families [with school-children] are the back-bone of caravan hire, so hirers have to maximise their lettings at Easter, half-terms and the school summer holidays, limiting the peak lettings to 10 weeks.  However much you extend the season, that will only be available to childless families.  In addition, all Parks have a limited season where all the facilities are provided, normally between Easter and the end of October, on average 220 nights.  Letting outside that is particularly difficult and usually requires the more expensive, centrally heated, caravans - more cost!  Some Parks ban letting outside that period and this is often enforced by local planning regulations limiting Park use to March to November [some to September], March and November being solely for owners to open and close their caravans.  Most 'business' owners do not take more than 14 nights themselves and even then work on the caravan while there; with 220 nights only available, the proposed availability of 210 nights is just not realistic - a more reasonable figure would be 150 nights.

As regards the suggestion that capital allowances be disposed off, temporary structures such as caravans have always been recognised as depreciating rapidly - having a maximum life of 15-20 years and, as such, have been recognised as equipment rather than fixed assets and this should stay.  It would be unfair if such owners could not recover the initial costs while those with permanent buildings are benefiting from constant increases in value, albeit sometimes taking a temporary dip.

However, the declared aim of HMRC is to stop those who are only letting to cover their costs and not as a commercial venture; in this context, I would have difficulty in opposing an increase in the minimum letting periods but think that 100 nights is more relevant - however, as most of my clients achieve this anyway, I don't believe it would make much difference and I have no reason to suppose that my clients do not reflect the general trend.

It isn't possible to set increased requirements which will work with both temporary and permanent holiday properties, so wouldn't it be more sensible to have sub-divisions in the regulations putting different requirements on temporary and permanent property businesses.

ARM

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