An FAQ drafted by Bishop Fleming's tax technical team on the changes to Furnished Holiday Lets legislation that may affect you.
Generally no, but it will change the tax relief available for capital expenditure.
Where incurred before this date (or before 1 April for companies) on plant & machinery for use in the dwelling, capital allowances will continue to be available after the repeal. There will not be a deemed disposal on the date of the change, and the normal rules on disposal proceeds and balancing adjustments will also continue to apply.
No capital allowances will be available for capital expenditure incurred after this date on plant & machinery for use in the dwelling. However, allowances will be available on plant & machinery used in the property business but not in the dwelling, such as a separate swimming pool.
After the repeal, FHL businesses may claim 10% of net rents as a wear and tear allowance, in addition to any capital allowances due under the above paragraphs. Similarly, LESAs are available for the purpose of acquiring or installing energy saving items in the let property, up to £1,500 per dwelling.
Before the repeal, losses were available for sideways relief. Following the repeal, losses that arise from a property business can only be relieved by carry-forward against subsequent property business profits. This also applies to losses incurred before 5 April 2010 but which are unrelieved at that date.
For unincorporated businesses, the FHL trade is deemed to cease on 5 April 2010. However, provided the business had been run for at least one year to this date, it remains possible to claim ER on a disposal up to 3 years following the date the trade ceased, including the deemed cessation on 5 April 2010, i.e. by 5 April 2013.
Similarly, disposal of shares in incorporated FHL businesses remain eligible for ER for up to 3 years following the cessation of the trade, including the deemed cessation on 5 April 2010, provided the other conditions regarding trading status, share ownership and being an officer or employee of the company apply for one year to the cessation.
It may be more difficult to claim ER, however, where an individual owns the property outside his or her company or partnership.
Reinvestment in a FHL property will only qualify up to 5 April 2010.
Reinvestment in other trade qualifying assets will qualify in part, only the time proportion of the gain up to 5 April 2010 will be eligible for roll-over.
Gift relief may only be claimed on disposals up to 5 April 2010. However, hold-over relief under where inheritance tax is immediately chargeable, which would normally occur on transfer into a trust, is unaffected by the repeal.
HM Revenue & Customs will look for the provision of services over and above those normally provided by a landlord. Examples would be the provision of additional on-site services such as a bar/restaurant, sports facilities and laundry.
The whole of the activity could only constitute a trade where the client resides at the premises and provides the additional services such as above.
Alternatively, it may be that a separate trade is being carried on in addition to the rental business, where the client provides the following:
Where a single payment is made, it would need to be split between the two activities on a reasonable basis.
For further information, please contact Andy Richens on 01392 448800, or email arichens@bishopfleming.co.uk
Date added: Friday 12th February 2010
Latest updated: Thursday 8th March 2012
Comments
Richard Tyler-Street, Trenance Farm Cottages
The proposed new rules could fairly be applied to holiday homes owned by absentee landlords and holiday let by them through agencies, with very little owner input.In the case of self-catering holiday complexes, such as ours, it would be most inaccurate and unfair to designate us as property investment companies for tax purposes. We are a normal business with very considerable owner and employment input. We live on the premises, run our own office, take our own bookings, brief customers and show them in, supervise our swimming pool and games rooms, carry recycle items to the dump, carry out very prompt repairs and maintenance to our property and garden. In the case of long term residential lets, business rate is not applicable, the tenant normally pays council tax and also rubbish and recycle items are removed free of charge.In our case we pay uniform business rate, which is rising astronomically – viz: Upto 20/08/2009 £18,000 From 21/08 2009 £22,500 Due from 01/04/2010 £28,750 Our visitors recycle items have to be disposed of by us and their rubbish collection paid by us. If we are in future to be grouped with residential letting for tax purposes we may just as well apply for change of usages to residential letting. This would make considerable savings in overheads and our work load. It would relieve the chronic local housing shortage BUT would cause irreparable damage to tourism in this area. This would have a re-bound effect on other business in a region which is impoverished compared to the rest of the country in wages and employment availability. Fishing and farming have been decimated down here – is our last mainstay tourism, to go the same way?RegardsRichard Tyler-Street
Comment made: Monday 1st March 2010
Andy Richens, Bishop Fleming
Whether the property business amounts to a trade (and therefore outside the repeal) will depend upon the facts and each case will be decided on its own merits. It will be necessary to show that the services provided are above those normally provided by a landlord. However, the HMRC published examples are quite harsh on this. The provision of food, where required, would give the strongest possible argument.
Comment made: Wednesday 24th February 2010
Anonymous
An important document to read is HMRC Withdrawing the Furnished Holiday Lettings Rules from 2010-11 Technical Note 9 December 2009 - http://www.hmrc.gov.uk/pbr2009/withdrawing-lettings-rules-3760.pdfPay particular attention to page 15 example 2 - stating with businesses will be affected by the repeal, not happy reading I'm afraid.
Comment made: Friday 19th February 2010
Anonymous
We recently converted our B&B after 9 seasons to a self catering holiday house to sleep 16. The house was and remains our business and livelihood. We have moved out to allow higher available bed numbers in the house. It is a full time job to maintain the house and garden. We provide bed linen, towels, loo rolls, etc. Is our business affected by the repeal of the Act?
Comment made: Thursday 18th February 2010
Adrian Black, North Hill Cottages
I assume from reading this that a self catering business with multiple units on the same site where the owner lives on site and other services are provided such as shared laundry, swimming pool, tennis court etc would be exempt from the new rules
Comment made: Wednesday 17th February 2010
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