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Holiday lets chaos

12th Apr 2010
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The measure to abolish favourable tax treatment has been dropped - for now! When will it be back, and is there time to ask for another alternative to be considered? Rebecca Benneyworth considers the implications.

The measure abolishing favourable treatment of furnished holiday lettings (FHL) has been dropped from the 2010 Finance Bill in the interests of getting the legislation passed in time to dissolve Parliament for the general election. However, a sigh of relief from those letting properties should be held back until we know more about what will happen next.

In dropping the Schedule from the Bill, the Minister stated that the measures removed would be re-introduced in the next Finance Bill – immediately after the general election. So if Labour win an outright majority in the General Election, we shall see the return of this measure. It is not absolutely clear whether the measure could then be started with effect from 6 April 2010 or whether this would mean a one year delay to the loss of favourable tax status for furnished holiday lettings, but you can be sure that the party that introduced this measure will ensure it reaches the statute book quick smart! Other parties, while keen to see the measure dropped from the Bill, are not making any clear commitments on future tax breaks for this area.

The problem

In 2009 it became clear that the favourable tax regime applying to furnished holiday lettings could no longer be restricted to UK properties only as this is discriminatory and against EU law. In extending the relief to qualifying properties in the EEA the Government brought UK law in line with EU law. From that point the issue of FHL reliefs became a potentially expensive luxury. The FHL regime beneficiaries fall into two distinct groups :

  • Owners of a second home who let it out (either to a circle of friends or more generally) and manage to meet the qualifying conditions for FHL treatment, and
  • Farmers and other rural business owners who have a development of holiday homes which they manage – in some cases an entire “estate” for which management is a full time job and provides part time employment to a number of local staff in cleaning and maintaining the properties.

In the first category are clearly a number of well off individual owners of second (and even third) homes who can benefit from the favourable income and capital gains tax treatment, but for whom, it might be argued, the rules are not really intended. The ranks of these taxpayers, many with second homes in rural communities, who have contributed to the elevation of property prices in some rural areas and the loss of schools and other amenities necessary to year round residents would now of course be swelled by the lucky ones who also (or maybe instead) have homes elsewhere in the EEA who can contrive to meet the letting conditions and benefit from tax relief too. It’s not too far a stretch of the imagination, I suspect, to think of the very wealthy with holiday homes in southern France or northern Italy managing to achieve their letting requirement from amongst friends and correspondingly are also able to help those friends meet their own letting requirement too, and who will benefit from tax breaks which are intended to help the UK tourist business.

The cost of the relief could escalate significantly from the £20 million yield projected for the abolition of the rules in 2009 (Budget 2009 Red Book page 152, line 30). The quoted £10 million cost of extending the rules to the EEA also includes the small degree of retrospection included in the change, followed by a £20 million yield for the year the abolition took effect.

The solution(s)

In abolishing the regime, it is easy to suspect the Treasury of going for the “nuclear” option. If the costs are likely to spiral to an unacceptable level and then dumping the favourable treatment is probably the simplest and cheapest option. That still may be what we end up with – in fact that is the most likely outcome.

However, losing the measure from the first Finance Bill does allow the opportunity to consider alternatives. How might the relief be targeted at the second group of owners rather than the first? Here are a couple of suggestions – maybe one or other of the opposition parties would like to take these up? If members have improvements on my ideas to suggest or can see any hidden flaws that I have not identified please do comment. I suggest the following options to apply in addition to the existing qualifying conditions.

Option A

Option A would concentrate on multiple ownership, so that in any tax year the FHL relief can only be available if more than one / two properties are owned and let under the qualifying conditions. This would help those who have a genuine business in holiday lets (see The Tranquil Otter for an excellent example) and exclude those holiday homeowners who are really just making money on the side from their own holiday cottage. It would be useful to know how many homes are operated on a “single home” basis in our main tourist destinations and to think about the likely consequences of such a policy – would some owners be forced to sell up without the relief? What would this do to the local economy / tourist trade / house prices?

The downside might be that the seriously rich who have holiday homes all over Europe might still benefit from this one, but it would be difficult to shut all of the doors, and the cost to the Exchequer of these very few would probably be minimal.

Option B

This would concentrate on non-occupation of the property which is subject to FHL claim. So for any year when FHL benefit is claimed, the owner of the property and connected persons cannot occupy the property. This would focus the relief on those who live in the region and run holiday cottages as a genuine business. They would never occupy the property as they have a home nearby, but if there were a problem and they needed to move into one of the properties while for example, building work is carried out on their main home, then the loss of relief would be for the relevant tax year and no more than that. The CGT reliefs could be available if the property qualified for FHL treatment in the last 12 months (Entrepreneurs’ Relief) or some other period – maybe pro rata in the case of rollover and holdover relief. This would certainly shut out the holiday home people, but would allow a person to buy a future holiday home / retirement cottage and let it as a holiday let until taking up residence in the future, so to this extent relief would be available on potential second homes.

Is it possible that we might salvage something for the rural communities from this mess?

Replies (21)

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Nichola Ross Martin
By Nichola Ross Martin
12th Apr 2010 11:28

Why will this impact on rural communities?

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

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

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

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

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

Virtual tax support:



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By sg_hariharan
12th Apr 2010 11:51


good one



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By carnmores
12th Apr 2010 19:00


did you see my qiestion re this

was looking forward to the webinar again

and the orevious one too

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By Debra Lowndes
13th Apr 2010 10:25

Furnished Holiday Lets - EEA

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

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

Clarity is necessary.

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13th Apr 2010 13:59

FHL's - The Otters' Perspective

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

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

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

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

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

Nicholas Kittoe, Director, The Tranquil Otter Limited.

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

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By User deleted
14th Apr 2010 07:02

FHLs - Do many advisors really understand this industry?

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

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

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

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


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By User deleted
14th Apr 2010 12:29

FHL properties

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

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


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By wood and co
14th Apr 2010 13:39


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

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

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


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14th Apr 2010 13:41

FHL Tourism Trade Responses

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

To view and/or download responses go to:

Responses to the above were submitted by:

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

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

Graham Tayler - Chairman
Wales Association of Self Catering Operators
[email protected]


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Character from Adam Sandler film "50 First Dates"
By 10sectom
14th Apr 2010 13:53

FHL Rules

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

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14th Apr 2010 15:24

FHL Tourism Trade's 'Alternative Option'

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

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

The results are that;

if the occupancy threshold is increased from 10 to 15 weeks, then:
        79% of UK properties would still comply
        76% of European properties would NOT comply

if the occupancy threshold is increased from 10 to 20 weeks, then:
        60% of UK properties would still comply
        88% of European properties would NOT comply

The Impact Assessment states that the FHL Rules provide UK self-catering businesses with £20m pa of benefit and that if the rules were permanently extended to include EEA properties this would increase by £5m to £25m pa. Therefore, combining these figures with the results of the above analysis, we arrive at the following:
If the occupancy threshold was increased to 15 weeks the total cost would be £16.7m (£15.5m for UK properties and £1.2m for EU properties)
If the occupancy threshold was increased to 20 weeks the total cost would be £12.6m (£12m for UK properties and £600k for overseas properties).

Raising the occupancy threshold for self-catering properties would therefore concentrate the tax treatment benefits on UK self-catering businesses managed commercially while, as the same time, reducing the total cost to The Treasury from £20m per annum to either £16.7m or £12.6m depending upon the level to which the threshold is raised.

This solution also has the key added benefits of:
ensuring that owners of second homes do not take advantage of tax rules that are aimed at supporting genuinely commercial rural and seaside tourism businesses which support their local economy,
encouraging businesses operating at around the 10 weeks occupancy level to increase the size of their business, thereby adding further benefits to their local economies,
preventing self-catering businesses turning into seldom-visited second homes, thereby exacerbating the problem of “ghost villages”, and
avoiding the many court cases that will inevitably follow the repeal of the FHL Rules as self-catering business seek to demonstrate that they are trading businesses while HMRC seeks to tax them as property businesses.

Graham Tayler - Chairman
Wales Association of Self Catering Operators
[email protected]

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
14th Apr 2010 19:57

Quick thanks from me to two contributors

First to The Tranquil Otter - thanks for the most awesome weekend I spent last October. Weather was filthy but I still got in the hot tub! Hubby and I had a lovely romantic break (32 yrs married and the magic is still there - I defy it not to be in this place!!)

Second to wood&co - thanks for your good wishes - for the puzzled, I start chemotherapy for breast cancer tomorrow, surgery later this year, so I'll be dipping in and out of the site between treatments. I'll be back on at full strength as soon as I can ... meanwhile tax is a welcome distraction when I feel well enough! Going to do the race for life in Gloucester at the end of June, even if I need to be pushed round in a wheelchair (but I'm hoping not!). (For "race" read "slow walk"!!)

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By mkcdavies
14th Apr 2010 22:35

Agree with WASCO

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

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By User deleted
15th Apr 2010 08:30

absent owners

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





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By sally1964
15th Apr 2010 09:15

Option b but ....

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


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By sue scherzo
15th Apr 2010 09:52


Good luck with the treatment.

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By sue scherzo
15th Apr 2010 09:57


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

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

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

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By mikewhit
15th Apr 2010 12:33

Here we go again

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

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

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By shoshana
15th Apr 2010 21:24

Reason for withdrawing FHL treatment

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

Malcolm Greenbaum

Director - Greenbaum Training & Consultancy Limited



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By J Lessels
23rd Apr 2010 11:18


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

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

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31st Jul 2010 17:09

Government's latest FHL consultation update

The Government's latest FHL consultation paper has been published (27-July) and can be downloaded at:

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

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

The proposals are to:

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

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

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

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

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

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

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

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

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

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


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