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Holiday homes face tax squeeze

12th Aug 2010
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HMRC is consulting on its plans for new legislation to replace the current Furnished Holiday Lettings (FHL) regime. Rebecca Benneyworth looks at the current plans and offers her suggestions. Add your views here to influence the rules – consultation is open until 22 October.

The current tax rules allow furnished holiday letting to be treated as a “quasi trade”, with loss reliefs available as if the activity were a trade and a number of CGT reliefs applying to disposals. Those letting out homes can also claim plant and machinery allowances for expenditure on furniture and equipment, and in particular the Annual Investment Allowance.

The changes are needed because the regime needs to apply to the rest of the European Economic Area rather than the UK only. If extended as they currently stand, the FHL rules would be a serious drain on tax revenues as owners of holiday homes abroad offset any losses incurred against UK income.

Holiday homes are an important part of the UK tourist industry and provide jobs in rural areas throughout the country. The Treasury has a difficult task to come up with new legislation that satisfies Europe without damaging the UK economy, but also minimises the potential for inappropriate exploitation of the new rules.

The proposals

The latest FHL proposals (1.9MB PDF) seek to tighten up the conditions under which the favourable tax regime can apply, and to modify the rules on loss relief as follows:

  • A qualifying property must presently be available for letting to the public for 140 days a year. It is proposed that this is increased to 210 days a year – 30 weeks.
  • A qualifying property must actually be let to the public for 70 days a year – this will increase to 105 days or 15 weeks.
  • Losses made in a UK or EEA FHL business will be restricted so that they can only be set against profits from the same FHL business. This ends the favourable loss relief available on FHL activities.

Other proposals formalise the treatment of capital allowances. Under the FHL rules, a property must meet the letting conditions in order to claim capital allowances in the year; strictly there should be a disposal of the assets on which allowances have been claimed when the letting period drops below the required level, as these assets no longer qualifyfor allowances. HMRC has taken a concessionary approach when a property fails to qualify for what is anticipated to be a temporary period, but this approach needs formalising.

The new capital allowance rules propose that the plant which qualifies under the FHL regime, but not under normal letting rules, is maintained in a separate pool or pools. No allowances are granted in periods for which the property does not qualify, but additions to and disposals from the pool are dealt with in the period, the written down value being brought “on stream” again when the property once again qualifies.

Practical problem 1: Availability and actually let changes
Increasing the available and actually let periods by 50% may not have a significant effect on those letting commercially, but may well eat into the time available to a family which occasionally lets out a holiday home. This approach seem appropriate, as the favourable tax treatment should really extend to those operating in this area as a commercial activity.

Families who rent out their holiday homes but are not able to meet the new higher letting rates would simply declare the income as rental income, and set any losses against their net rental income of the year of the loss and subsequent years.

But how will the extended availability and letting periods affect the purely commercial operator? Some businesses operate all year round and will have no problem meeting the “available for letting to the public” condition; this still leaves a period during which the property can be overwintered, or when the owners could spend time there off season.

Let’s consider the “actually let” condition. The tax year is the basis for the test – let’s look at a few recent tax years, taking the period from April to October half term as an example.

  Good Friday Tax year No of weeks Required occupancy
2007 6 April 2007/08 29 52%
2008 21 March 2008/09 30 50%
2009 10 April 2009/10 29 52%
2010 2 April 2010/11 29 52%

However, of this period, a total of around 10 weeks represents school holidays, so those operators targeting the family market need to achieve close to 100% occupancy during that period, leaving them to find a further 5 weeks outside school holidays to meet the letting capacity required.

A very late Easter at the end of April would increase the required occupancy rate by reducing the number of weeks in the main letting period. Family lets could face a problem when Easter falls very early, putting two school Easter holidays in one tax year, at the expense of the years either side. Where there is no school Easter holiday in a tax year the number of school holiday weeks falls to 8 and the owner would need to find a further 7 weeks of lettings to make up the required period.

While some operators manage to let properties all year, trade bodies and those within the commercial sector will need to confirm that the new conditions are reasonable for the wider industry.

Practical problem 2: Losses
No commercial operator goes into this business to make a loss. But keeping holiday properties which are solely for letting and not for family occupation up to the standard that guests expect is an expensive business. Properties have to be redecorated regularly, and guests expect high quality appliances and fittings, good quality linen and so on.

Domestic grade furniture is not robust enough to cope with holiday makers’ heavy use, so operators need to invest in hotel standard furnishings. A commercial operator faced with refurbishing several properties could well incur a loss. Restricting losses to FHL activities will bring down the cost to the Exchequer, but will put commercial operators in a worse position than a “pure” rental landlord who can set a loss on rental activities against other rental profits (segregating UK and non-UK rental businesses and the offset of losses).

Under the proposals, a commercial operator would not be permitted to set a loss on his FHL activity against any other pure rental profits – even those relating to FHL properties which have not met the relevant conditions in that year. Floods, foot and mouth disease and other complications could lead to losses for operators in the “wrong” area.

The losses issue made me wonder whether the new legislation is right for commercial operators of multi-property sites. Is it not time to recognise that what these businesses are doing is, in fact trading? A site with eight properties, tended by full time maintenance and cleaning staff and let throughout the year is surely a trade? I move that we come up with a clear definition of this activity and move it out of any concessionary treatment into full trading treatment.

The definition would need to be clearly drawn so that operators know which side of the line they fall (probably excluding owner occupation as a starter). These businesses would get the support they need, without extending the reliefs to those who are effectively letting an investment property.

What about single property owners, who represent an important part of the tourist business, but who do not fall into the trading definition? These new FHL proposals seem fair enough in that light – in exchange for favourable capital allowances and CGT treatment, these owners face a restriction on their losses if they incur any.

Practical problem 3: Capital allowances
For a single property owner, the proposal for a separate pool of expenditure which will only qualify if the FHL conditions are met seems a sensible one, and the simplest way to overcome the current practical problems with applying the strict letter of the law. Of course there may need to be two separate pools if the businesses has claimed allowances on integral features.

Provided the true trading businesses are segregated as outlined above, I would go further than the current proposals. Where assets are used in a tax year for letting which does not constitute FHL activity (due to the conditions not being met) I would suggest that the pool of expenditure is reduced in any event by a Writing Down Allowance, which is not available as a tax allowance, but reflects the non qualifying use of the assets concerned. Otherwise, eventually the owner will claim for the full cost of the assets, and no recognition of use for non-qualifying purposes will ever be made.

There is one major flaw, however, in the “notional pool” approach as the consultation document calls it. If the owner has, say three properties in different locations, each of which may or may not qualify as FHL from one year to another, surely six separate pools will now be needed to reflect the need to claim allowances or not in respect of each property each year. This flaw is present irrespective of whether my suggestion that a WDA is applied in any event; I cannot see a solution to this and surely many will claim that this adds too much complexity. I still think the separate pool idea is a very neat solution to the current problem, but it does present challenges of its own.

Those are my observations on the proposals. We would like members to comment on these and help us prepare a response for the consultation, either by adding your comments here, or sending them to us by email to [email protected]

Replies (18)

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By Paul Scholes
12th Aug 2010 23:18

Generally in favour

As always, many thanks to Rebecca for doing all the hard work for us.  Let's hope that this results in a valuable response to the consultation (although nearly 500 reads and no comments doesn't bode well).

I have always had a problem with FHL treatment in as much as the owners I have dealt with look as much to the long term capital gains benefits as they do to covering their mortgage and therefore providing their family with cheap holiday accommodation.  Not only are they rewarded for their non-commercial activity but housing stock is denied to local people and there is more chance of above average price rises.  In other words this is anything but a trading activity.

I do recognise however that there are commercially driven operators who provide local employment and contribute to the tourist industry as a whole.

The added time limits for availability & letting are a move in the right direction but given that many tourists now have more leisure time (ie longer holiday entitlement), the climate is better and that there tends to be more to do in off-peak times I'd move the availability level to perhaps 35 rather than 30 weeks.

I agree that there does now need to be recognition of full trade for the serious operators however, as in other activities perhaps there should be a limit on the number of years a loss may be carried forward.

It is a shame that there are insufficient stats for the CGT effect on FHLs.  On the face of it, offering Entrepeneurs Relief to an activity that is based around something the owner hopes/plans will provide capital appreciation with little commercial input, seems to run counter to commercial intent.  Again though, for serious operators, the investment motive will be secondary and so I would propose resticting any Capital Gains reliefs to them.

Finally a declaration of interest, I'd love to move to Dorset in a few years when semi-retirement becomes too much of a temptation but the b****y 30 something Londeners have snapped up the nice cottages, so I'll keep moaning and doing the lottery.

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By Hulacki
13th Aug 2010 12:05

FHL proposed changes

The legislation definitely needs to be formalised as we need to be able to advise our clients, which we cannot do when policy changes keep changing.

For those that are genuinely trading I cannot see any problem with increasing the available for letting period to 30 or even 35 weeks, although this can be difficult to measure – actual lettings are a more definite measure. Again the additional actual lettings required should not cause too many problems, even if this time falls outside school holidays if the properties are properly marketed.

I agree with your solution to the capital allowances, it is fair that if the property has not been used commercially during a period then the allowances are not available to reduce the tax liability. There will be extra work involved with computing the allowances, but this will not add complexity, just time.



Haxton Accountant

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By Andy3T
16th Aug 2010 13:32

Relief in Spain but not in the UK?
I admit to speaking from ignorance & prejudice, but surely many FHLs are in Devon/Cornwall, and let primarily over summer with any let outside 'the holiday season' being unusual - sales then being made over a relatively limited period only. Other countries with warmer climates, for example Teneriffe (Spain) may have much longer standard letting seasons - it would be odd if tax relief was easier to obtain on a FHL outside the UK than one inside it.

A restriction on the pool could be made in a similar fashion to non-business use of an asset by the owner of an unincorporated business - just disallow x% of the CA claim in a year to reflect the inadequate letting element. That should be relatively straightforward for single property businesses, albeit tougher for multiple property businesses.

Property rental business are often problematic to classify from a badges of trade perspective. Personally I'd favour treating all of them as trading and using the non-commercial trade approach to preventing unfair tax relief - possibly with a very simple test of 'have you made money in 3 or the last 5 accounting periods' to separate the 'proper' traders from the hobbyists and gains investors.

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By Joss
16th Aug 2010 13:38

FHL - number of weeks

Good idea to increase the number of weeks because I feel the offset of losses should only be available if there is a trade. However, what if there is a bad year? As Rebecca points out, an outbreak of foot & mouth could mean that, under the current set up, genuine trade losses are disallowed because insufficent commercial letting weeks have been clocked up. It begs the question whether the number of weeks/ days that the property is commercially let is the best way of measuring whether there is a trade.

Maybe we should be determining FHL qualifying/ non-qualifying status under the badges of trade. For instance, if they make losses every single year then there is no profit motive and they can scarcely be considered a trade. As an example, a couple purchase an FHL in September 2009 with a view to obtaining a letting income. The property market crashes and there is a recession. They only manage to get two weeks commercial letting during 09/10.  They find all sorts of little snagging jobs need doing on the property and they both take a week off work to sort out the repairs and they employ a builder to sort out the major issues. So they make a loss in that tax year. In the following tax year (10/11) they manage to break even and in the year after that (11/12) they actually start making profits.

How about losses being able to be reclaimed retrospectively provided the business makes profits in subsequent years? You could cap either the number of years of losses that could be reclaimed or the total amount of the losses.

So in 11/12 they could offset their brought forward 09/10 FHL losses. .... Against what? Now it could get interesting. They are 09/10 losses so maybe other income in 09/10? THis would be a real headache wouldn't it? How about current year offset in the year the loss becomes a qualifying loss, with c/back and c/fwd options?

I see the simplicity of the fixed number of weeks/ days being used to identify qualifying vs non qualifying FHLs but I do think it is desperately unfair on some owners.... and actually, in my experience, often hard to prove or disprove.

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By billwork
16th Aug 2010 14:02

Not all FHLs are second homes in Tuscany, the Dordogne etc!

I wouldn't disagree with much of what you say, Paul, but I do have a couple of comments and I have to declare an interest - I am an investor in a UK holiday complex where the owners' individual properties are managed by a separate company.  I mention this to illustrate the diversity of providers in this sector.  Local council by-laws prohibit the owners from living in their properties for >51 weeks pa because this is 'pure' holiday accommodation. 

1. I have no problem at all with the extension of the availability test.  IMHO, it is axiomatic of a commercial operation that the owners will seek to maximise profits and, for a letting business, that means ensuring maximum availability.  Obviously there are times when any business asset has to be "taken down" for maintenance or whatever but 22 weeks per annum is more than adequate for this.  I would even be prepared to sacrifice my one week a year private use if it meant I could demonstrate commercial intent and keep FHL treatment!

2. The 'actual lettings' test is more problematic because there is really not much I can do to influence the number and length of lettings.  I have made a loss in most years so far.  As Rebecca says, holiday lettings are expensive to maintain relative to the income stream, so HMG has to decide whether the loss etc relief it is providing is worth it to sustain the provision of this type of accommodation.  That is a value judgement as much as a purely economic one - see other comments on rural/resort employment etc.  What I am clear about, however, is that many UK holiday compexes will be unviable without loss relief and CAs for owners.  The value of their investment will be affected and their only option will be to sell out to the managing company at a loss.  New investment will also be limited to the biggest players (eg Center Parcs and Butlins) with smaller, newer players unable to enter the market.  That has to be bad for competition and, therefore, choice.


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By User deleted
16th Aug 2010 14:22


Now at over 2,600 reads and still only two comments!

You have to feel for accountancy firms located in tourist spots or with lots of FHL clients!  Like the rest of us, they'll have to wait and see...

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By twickers
16th Aug 2010 14:48

FHL proposals

 I would suggest a simpler solution to EU requirement-

1-withdraw present FHL tax definition as at present- solves the EU issue

2-Create a new limited company format - (as with REIT)
                xxxx.PPP (personal property portfolio)
          anyone wishing to claim tax relief ( i,e taxpayers to contribute) would have to place all
          involved properties into this format. to which all present charges and relief applies.
          with one addition NO Entrepreneur relief on share holdings.

3- Anyone wishing to simply buy home for holidays or eventually move into in retirement
       simply invest their money .    NO reflief from the rest of tax payers. and Income taxable
       as with any other investment.

4-it would end the buy to let scandal and prevent another financial crisis based not just on banking
but on a property market completely out of control, mainly due to buy to let relief on mortgage interest

PS. old enough to have been involved in the 70's secondary banking and property collapse
and the subsequent consequences for everyone. Takes a long time to recover from such fiasco's as
people are now discovering.
    it is also ,an unfair society where some are able to purchase 2nd homes on the taxpayer while those
   seeking a home to live in receive no relief.



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By peterlashmar
16th Aug 2010 15:05

FHL changes

All most unsatisfactory - buying a property for commercial letting, whetehr FHL or not,  is a very long term plan. Having rules subj ect to considerable change within 6 months is unfair.

Generally FHLs would only plan to make a loss after mortgage interest - it seems that owners do not ever make an adjustment for periods of private/ owners/ free  occupation and HMRC never ask. This will become more signiificant on HMRC enquiries when many more properties have on-qualifying years.

The CGT advantages are considerble especially compared with non FHL long term investment properties which now suffer substantial CGT with no taper reief and a rate which would most likely always be at 28% for a property held for a long time. The new rules will tend to result in many years which do not qualify, despite the owners' hardest endeavours, which will produce a real mess for CGT.

As so often in the past this is all the reuslt of no-one in the Treasury being able to take a "big picture" view and to co-ordinate with other Government social objectives. The provision of housing is a very hot potato that no party wants to comprehensively address. That includes John Prescott's commitment to 250,000 new houses a year for 10 years. That was, I beleive 4 years ago and the total number of houses built in that period is less than his annual commitment. ( My statistics may not be 100% on this).

Come on Coalition Governnment - sort out a comprehensive plan!








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By Vaughan Blake
16th Aug 2010 18:35

If it looks like a trade....

I see a parallel with "hobby farming".  If any business cannot make a profit after six years (and that's generous) then it surely is not viable.

Thus an alternative would be to allow FHLs an offset (and carry back) for say two years only and then carry forward further losses sustained.  Therefore if there was an outbreak of foot & mouth/ floods/large repair bills, relief would be available to an otherwise viable business.

Regardless of hitting the qualifying letting period if a holiday let can never make a profit (high borrowing/maintenance costs etc) then it is a "hobby let" and not a trade.

I have also never understood why averaging is limited to authors and farmers.  The basic logic that grants these trades the relief could equally be applied to the majority of businesses.  If this relief was extended to all businesses and rental income it would also alleviate fluctuations caused by events beyond the control of the owner.  


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By chrisbraidwood
16th Aug 2010 20:43

Furnished holiday lettings

Some years ago I owned a flat in a holiday town and popular golfing resort in Scotland. In order to be able to afford to keep it I used to let it for holiday lets during the Summer months but in Scotland the letting season is much shorter than say Devon or Cornwall.We were fortunate to have had a family who rented it for the whole month of June (for several years) and then July and August were not a problem ...Before and after that in the year it was hopeless. Full occupancy for those three months comes to 10 weeks so I do think the new proposals need to take into account the many people who may have one property which may not be in a part of the country that is easy to holiday let for more than 3 months .I am therefore against changing the existing number of weeks unless a regional variance is introduced and that would be unfair on several regions as well.


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By rosemoor
17th Aug 2010 02:09

FHL and the realities of letting self catering accommodation in

We let nine holiday cottages - the former outbuildings belonging to what used to be a gentleman's residence in the Pembrokeshire countryside. We have been in this business for about 13 years now, and are quite pleased to see someone impartial state that it is a very costly business to keep holiday properties up to standard. Now, I come to this forum not as an accountant, but as an interested party: as a result some of your technospeak goes over my head. 

The perception of many is that this is an easy and quick route to riches; and if I am to believe some of the posters of comments here those outfits that don't make a profit should be treated as hobbyists. Let me try to set a few things straight.

By its very nature, this business is difficult to make much money in. You are talking about pretty much fixed assets with a (very) high initial cost. And if the very initial cost should happen to be a little lower (people buying a wreck) then the upgrading usually adds more than enough to compensate. The returns are very much market driven/governed. There is scope to differentiate by opting for the lower or higher end of the market, but in either case, your neighbour's price will dictate yours. And then there is that most fickle of elements in any business: the customer. Now, he or she has the choice to take their custom to Spain, or suchlike, or to stay in the UK. My point is: the lower the prices offered by Ryanair et al., the more we feel the pinch. Fair enough; I'm not one to complain about this sort of thing.

But the customer wants/gets more: the average good quality self catering property offers much more in the way of facilities, space, than other segments of the UK hospitality market: private living space, separate bedrooms, separate private bathroom(s), private kitchen facilities, outdoor space/facilities, with perhaps added goodies such as a swimming pool, playground thrown in. For one, I'm pretty certain what we are offering can compete with the very houses of quite a few of our guests. This is normally not on offer in your average hotel, nor in the average B&B. No, no dinners, but even those are on offer in some shape or form in your better self catering outfit (they are in ours, anyway).  And yet, prices per person per night are mostly much lower in self catering. Have to be much lower, otherwise you will not fill your weeks. There are after all only so many fat cats to be wooed in the UK, or elsewhere for that matter. 

So far, I've only touched on the market. But there's more. Many self catering businesses are run in/from older properties. These offer (sellable) charm, but this comes at a price: by their very nature older properties are much costlier to run/maintain. Then there's another quirk: many (perhaps even the majority) of self catering properties are single units, owned by a single individual or family. These may (or may not) bring an annual income, but this will in the main never be enough to provide a living; it's mostly just a little bit extra coming in. This segment, whether situated in the UK or elsewhere in the EEA, is obviously the contentious one. Now, I would venture that this segment is causing more than its fair share of harm to those that do run their business in such a way as to actually make a living out of it. Why?

A single unit operator lets without having to charge VAT. Operators such as we cannot charge wildly differing prices for what is essentially the same product, just because we are/have to be VAT registered. So there is - let's guess - 12-13% of gross turnover gone.I'm not fully aware of the situation outside Wales, but where we are Business Rates are a major issue (my first inclination was to put "killer"). A single unit operator's UBR is much lower (maybe not relatively speaking; but in absolute terms), and will usually fall well within the limits for small business relief (at 50%, if I'm correct). Ours, on the other hand, falls well outside the scope of this relief. In our case this means another 7-8% of (nett!) turnover gone. And this is talking about a good year!

Now, I would dare anybody to come and tell us how to make a consistent profit (let's aim for a healthy 15% of turnover) if the market reigns supreme, and the way the various players in the market are treated is stacked against us, to the tune of - say - 20%. Any takers? No, I thought not. 

And yet, this type of business still has its attractions: relative freedom, (mostly) pleasant customers in pleasant circumstances, pleasant surroundings, and - dare I say it - not unpleasant jobs, if you like major DIY. But even with all that DIYing, we really struggle to make any serious profits at all. I would even go so far as to say that a place such as ours will only turn a consistent profit if you run it down, like our predecessors did. No prizes for guessing what that has been doing to our P&L account. But does this turn us into hobbyists? Or should that be a reason to treat us as mere property investors? 

We have no problems with an availability threshold of 30 weeks, but do find the letting threshold of 15 weeks too harsh, especially as it seems to be meant to be applied on a per unit basis. There may well be reasons why a single unit does not reach this threshold, even when the lot combined does 50% more. We would therefore like to see any thresholds applied on a per business basis.

We wholly concur with Rebecca Benneyworth's observations regarding the treatment of businesses such as ours: yes, we are trading in each and every respect. The current FHL proposals will harm us in unwanted ways: especially the treatment of losses may well reduce interest in this type of business, with a reduction in resale value as a result. At the same time: we do not see why single unit operators, who will never ever be able to make a living out of their business, should be getting the same preferential treatment.

From the above it will probably be clear that I would like to go further, difficult though this would perhaps be to implement. Perhaps slightly off topic, but still: Market distortions that are a result of the British VAT regime should be abolished. Yes, I do mean: a business, any business, whatever its size, pays VAT. That's the situation in the Netherlands; a country we have very intimate knowledge of, being Dutch. And the complete shambles that is the system of Business Rates, with its fictions that suit (only) the VOA, its arbitrariness and discretionary powers, should either be abolished (or at the very least put on a much more equitable footing), or strictly applied along its own guiding principle: "what is the rent a willing landlord and willing tenant would agree". Given the very meagre profitability for tenants and very high capital investments for landlords of self catering businesses, the answer to that question, judged in at-arms-length situations, would have to be: "that rent doesn't exist". Fine; conclusion, fully in line: no Rateable Value.

Here's hoping ....


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By evanowen
17th Aug 2010 10:31

Housing shortages for locals

Is this regime putting more pressure on the market for homes in rural areas? I doubt that it creates many jobs and where do the poorly paid workers live? The tax regime appears to favour the elite.

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By scarletamos
17th Aug 2010 16:20

FHL Hard Work

Anyone having a FHL will know this is hard work.  I agree with increasing the number of available weeks but to increase the number of let weeks is quite harsh especially if your FHL is not in Devon or Cornwall and given that school summer holidays are only six weeks.  This takes no account of regional variations making Wales & Scotland problematic!

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By timcooke
17th Aug 2010 16:30

letting period

As a genuine  owner of a single FHL the 105 letting period is too onerous. Where I let it is very difficult to achieve much more than 70 days

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By offshorecampers
18th Aug 2010 19:46

Letting days

The increase to the number of actually let days should not be a problem for anyone who is truly running the operation as a business.  Realistically, if you're letting for less than 10 weeks then the property is probably in the wrong location to start with.

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By andrewcrompton
02nd Sep 2010 09:46

Even 70 days can be a challenge

I think the increase from 70 days is unfair.  There are many destinations where the season is only a few months long - coastal and ski resorts spring to mind - and 70 days in a good year could be a challenge for some, especially if there is some family use too.  City locations on the other hand may well be easier to let all year round.  Personally I think 70 days is more than enough to suggest the FHL is a genuine trade - you can't let for 70 days without advertising, booking systems, local management and cleaning, proper accounts & etc.

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By Arm266
15th Sep 2010 16:29

FHL Proposed Rules as they affect caravan hirers


I have read your article on proposed HMRC changes to Furnished Holiday Lettings, and also HM Revenue and Customs Consultation document, and wish to make the following comments :I can see the justification for the availability of letting to the public being extended from 140 days to 210 days and the requirement to actually let being extended from 70 to 105 days each year; in fact, I quite expected the latter. Most of my clients are complying anyway and HMRC expect that 75% of taxpayers will continue to comply. However, I believe that  [a] there should be a lower limit for caravans hired as FHL since the average length of Caravan Park seasons is just 220-225 nights, leaving very little for owners reserved use – perhaps the current limit would be more appropriate to caravan owners; I know that, at one time, Devon County Council limited all holiday letting in North Devon to a maximum season from 1st April to 30th September, thus reducing any possible season to 26 weeks i.e. 182 days. For those caravan owners it would make it impossible to comply with the proposed Furnished Holiday Lettings 210 day rule. Even in other areas, where the property is a caravan which is not centrally heated, that rule may be very difficult to adhere to due to weather conditions.I believe that there should be a contingency clause added to FHL, where exceptional circumstances occur, such as the flooding in the Severn Estuary, and more recently in Northumberland, to enable compliance to be waived by HMRC. Similarly, should damage occur to the holiday home, which prevents the holiday home being let.The removal of the ability to set losses in the early years, against other income for those years, rather begs the question as to why the Furnished Holiday Lettings rules exists, the benefits of which are almost exclusively the ability to set against other income – removal of this clause will mean that there is no difference to Other Lettings and makes discussion of minimum availability and letting rules rather pointless. People may just as well do the return under that Other Lettings provision. In the business I specialise in i.e. holiday caravans, many people will be forced to sell up and leave the business, since they haven’t got the cash flow to carry them forward until the caravan starts to make a profit. They need assistance in the early years to enable them to survive until they get net income out of it, which currently is received by the setting of early losses against their PAYE; but paying tax as soon as the caravan goes into profit – early profits under the proposed scheme would be offset by earlier losses, so the final result is no loss of tax to HMRC but rather a delay in paying tax. The changes in tax revenues, where people still remain in FHL rules, are not an overall saving, only a saving year on year, since those losses would still be recouped some years further down the line; however, the effect on individuals will be quite dramatic. Companies are be able to account for these costs as normal trading costs, so have an unfair trading advantage.However, HMRC’s assumption is that individuals are the vast majority of the users of FHL rules and these are the least able to fund a drastic change in cash flow until profits start to be made. There is a special case for the caravan sector of this industry, as caravans never make capital gains; in fact, they depreciate heavily in the early years and at very best have a 20 year life, so all the assistance caravan owners currently get is absolutely needed.I would remind HMRC that the policy objectives are stated as being to support the role of the tourism industry in our national economy and these current proposals will do just the opposite. The report writer makes some wild assumptions on tourism which I believe are totally without factual basis. If, as I believe, a large proportion of holiday lets are withdrawn from the market, the effect on tourism would be cataclysmic – inadequate supply of accommodation equals a dramatic drop in UK tourism. The likelihood of FHL clients transferring to other UK alternatives is very low - UK Hotel and Guest House accommodation is already renowned as being far more expensive than their foreign counterparts, thus making it far cheaper for tourists to go abroad rather than stay in/come to this country. Already caravans on the south coast are having difficulty competing with foreign holidays – an average south coast school holiday rent of £1k would allow the average two adult + two children to purchase a holiday abroad. HMRC expect around 65,000 individuals to be affected, please think of the effect the loss of 65,000+ holiday homes would have on the tourism industry, should all decide to sell up.  Before changes are made, would it not be sensible to confirm that the current arrangements are not in accordance with European law, rather than just to make these assumptions. Other EEC countries are not big on complying with EEC rules, let alone assumptions; this change puts our businesses at a disadvantage.HMRC are claiming that the change to including UK owned foreign FHL’s are not economically sustainable but the figures for this are far, far, less than the £30bn to £160bn [dependent upon the source information] that is being quoted for uncollected tax – if resources were put into collecting this, then changes to FHL legislation would become unnecessary and, thereby, alleviate the threat to the tourist trade.

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17th Sep 2010 15:52

Qualifying Letting Criteria

In regard to point 1 [A] the problem could be resolved if the Qualifying Letting Criteria was amended to read:

Qualifying property or properties must:
·         be available (and actively marketed) to let to the public during a year for a minimum of 210 days or if a planning consent is for less than 210 days the property or properties must be available to let to the public for the full number of days permitted.

In regard to point 2, I very much doubt that the legislation could be written to cover all the possible events that could occur. And I'm sure HRMC's view would be that the events you refer to would apply to all businesses in the area and consequently there would be no justification in treating holiday lets differently.


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