HMRC have for many years allowed the owners of furnished holiday accommodation situated in the UK to be treated for a number of tax purposes as though they were traders. In 2009 the rules were extended to cover all qualifying properties situated anywhere in the EEA.
In 2011the rules have been amended to
(1) Remove the entitlement, where there is a loss, to make claims for sideways loss relief against general income and terminal loss relief. This change takes effect for income tax purposes in relation to 2011/12 onwards and for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2011.
(2) Extend the length of time for which the accommodation must be both available for letting and actually so let. This change takes effect for 2012/13 onwards for income tax or for accounting periods beginning on or after 1 April 2012 for corporation tax.
The revised day count tests are as follows:
(i) The 140-day limit is being replaced by a requirement that the accommodation must be available for commercial letting to the public for at least 210 days in the tax year.
(ii) The 70-day limit is being replaced by a requirement that the accommodation must actually be let on a commercial basis to the public for at least 105 days in the tax year
Remember that the accommodation must not be let for periods of long term occupation of more than 155 days during the year.
There are two elections you can make to reach the occupancy threshold. There is an averaging election which can be made for any year where one or more of the properties do not reach the requisite limit. Thus, if, in 2011/12, two holiday cottages were let for 75 days each and a third one was let for only 68 days, the taxpayer could make an election which would treat each of the properties as satisfying the day count test for that tax year. Where a person has holiday property both in the UK and elsewhere in the EEA, the averaging election must be made separately for each of the two categories of property.
In addition the new period of grace election can assist where a property which has previously qualified as holiday accommodation fails to do so in the following year despite genuine efforts to do so. For 2010/11 onwards, where the property owner makes an election on or before the first anniversary of the normal self-assessment filing date for the tax year, the accommodation can be treated as satisfying the ‘letting condition’ for that year. Where an election has been made for that first year the period of grace can be extended to take in the following year as well. This election can only be made if an averaging election is not made in respect of the same tax year.
If the holiday property is owned jointly by a husband and wife, the normal 50:50 rule for splitting income does not apply and the couple are entitled to divide up their income for tax purposes as they see fit.
Note that the capital gains reliefs will continue to apply to UK letting businesses and now extends to non UK lettings:
HMRC have issued an advanced version of their new Helpsheet (HS253) which can be found at www.hmrc.gov.uk/manuals/pimmanual/attachments/PIM4100_helpsheet.doc
(1) Remove the entitlement, where there is a loss, to make claims for sideways loss relief against general income and terminal loss relief. This change takes effect for income tax purposes in relation to 2011/12 onwards and for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2011.
(2) Extend the length of time for which the accommodation must be both available for letting and actually so let. This change takes effect for 2012/13 onwards for income tax or for accounting periods beginning on or after 1 April 2012 for corporation tax.
The revised day count tests are as follows:
(i) The 140-day limit is being replaced by a requirement that the accommodation must be available for commercial letting to the public for at least 210 days in the tax year.
(ii) The 70-day limit is being replaced by a requirement that the accommodation must actually be let on a commercial basis to the public for at least 105 days in the tax year
Remember that the accommodation must not be let for periods of long term occupation of more than 155 days during the year.
There are two elections you can make to reach the occupancy threshold. There is an averaging election which can be made for any year where one or more of the properties do not reach the requisite limit. Thus, if, in 2011/12, two holiday cottages were let for 75 days each and a third one was let for only 68 days, the taxpayer could make an election which would treat each of the properties as satisfying the day count test for that tax year. Where a person has holiday property both in the UK and elsewhere in the EEA, the averaging election must be made separately for each of the two categories of property.
In addition the new period of grace election can assist where a property which has previously qualified as holiday accommodation fails to do so in the following year despite genuine efforts to do so. For 2010/11 onwards, where the property owner makes an election on or before the first anniversary of the normal self-assessment filing date for the tax year, the accommodation can be treated as satisfying the ‘letting condition’ for that year. Where an election has been made for that first year the period of grace can be extended to take in the following year as well. This election can only be made if an averaging election is not made in respect of the same tax year.
If the holiday property is owned jointly by a husband and wife, the normal 50:50 rule for splitting income does not apply and the couple are entitled to divide up their income for tax purposes as they see fit.
Note that the capital gains reliefs will continue to apply to UK letting businesses and now extends to non UK lettings:
· entrepreneurs’ relief;
· rollover relief;
· holdover relief;
· relief for loans to traders; and
· the substantial shareholdings exemption.
HMRC have issued an advanced version of their new Helpsheet (HS253) which can be found at www.hmrc.gov.uk/manuals/pimmanual/attachments/PIM4100_helpsheet.doc
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