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Business Tax  •  Coronavirus Advice  •  Personal tax

Tax relief on furnished holiday lettings and Covid-19

By RJP LLP on 13 May 2021

If you have a furnished holiday let (FHL) you will be aware of the requirements concerning availability and actual rental periods that must be met for it to be regarded as a trading business and receive the relevant tax treatment. As a brief recap, FHL property must be available to let for 210 days in a tax year and rented for 105 of those days. It must also be furnished (as the name suggests) and should not be occupied by long-term tenants for more than 155 days in a single year. Provided your holiday let property meets these requirements, you will be eligible for business asset disposal relief – BADR (formerly entrepreneurs’ relief) on any capital gains arising on disposal of the property provided you also satisfy the conditions for that relief to apply. In addition, you will not be impacted by the recent tapering away of loan interest tax relief or the new ‘wear and tear’ allowance restrictions that impact other residential landlords.

How the grace period works for FHL properties

The Covid-19 lockdowns may well have created some problems for FHL property owners because the government restrictions will have made it almost impossible to meet the qualifying criteria in the 2020/21 tax year.  If you have been unable to meet the full FHL rental criteria for the 2020/21 tax year but have otherwise always been eligible for FHL tax treatment, all is not lost. If your property has previously met the letting conditions, you are entitled to make an election for a ‘grace period’ and can then continue to have that property qualify as furnished holiday accommodation.

For example, Jane has a FHL in Devon which met the qualifying conditions in 2018/19 and 2019/20. During the Coronavirus lockdowns she could not rent it out as usual so can now apply for an election to cover the 2020/21 tax year. This will protect her tax entitlements.

In order to qualify for this grace period, the FHL property owner needs to provide HMRC with evidence that there was a genuine intention to meet the conditions and due to the lockdown, it was impossible. Because of the requirement to have been compliant in the past, the grace period does not extend to new FHL businesses which have not had a season of renting already.

Moving into a FHL means it is not available for rent

Note that if you own a FHL and decided to move in during the lockdowns, it will mean your property was unavailable for letting during the 2020/21 season. According to HMRC guidance published in 2020, any days when the owner is staying in the property do not count towards the 210 days and mean the residence is classed as not available for letting. Added to this, any other days when the owner has let the property to friends or relatives at zero or reduced rates are also excluded, because these do not count as commercial lets. In this situation it is not possible to apply for a grace period.

Chance to defer FHL tax payments

There were some other options available to FHL owners who faced difficulties due to Coronavirus. These were:

  1. The second income tax payment on account for 2020/21 which was due on 31 July 2020 could be deferred to 31 January 2021. If you have missed that second payment date you will have incurred a penalty unless you previously agreed a time to pay arrangement with HMRC.
  2. There was potential to defer any VAT payments due during the period 20 March to 30 June 2020 until the end of the 2020/21 tax year. Although the VAT payment could be deferred the VAT return must have been filed as usual.
  3. Property owners who pay business rates on FHL properties were entitled to a 12-month business rates holiday for the 2020/21 tax year.
  4. There may also have been an entitlement to a grant depending on the amount of business rates payable. This would provide a one-off payment of either £25,000 if the rateable value is between £15,000 and £51,000, or £10,000 if your rateable value is below £15,000.

If you have a FHL property and would like some practical tax advice, please contact partners@rjp.co.uk

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