The purchase of a dwelling with a view to short term letting for at least part of each year can give rise to some quite striking tax concessions.
The qualifying conditions are that the accommodation must be let on a commercial basis (i.e. not merely to offset the costs of ownership). It must be available as holiday accommodation for at least 140 days in the tax year and actually let as such for at least 70 of those days. It must not normally be in the same occupation for a continuous period of more than 31 days during at least seven months of the year, which need not be continuous but includes any months containing any of the 70 let days.
If these conditions are met, then the income is broadly treated as trading income, even though it is strictly a notional Schedule A business. Interest paid on a loan to purchase or improve the property is allowed as a trading expense (restricted if necessary by any private use proportion). Capital allowances and loss relief against other income sources may be claimed and the income qualifies as relevant earnings for personal pension purposes.
Properties used for qualifying furnished holiday lettings count as business assets for the purpose of CGT entrepreneurs' relief, and it is possible that they would also attract business property relief for inheritance tax. Such properties are eligible for CGT rollover relief and business gifts relief.
Budget 2009 included an announcement that Furnished Holiday letting status would be extended to lettings within the European Economic area, and that this treatment can be backdated. However, at the end of 2009/10 the furnished holiday letting scheme will be abolished in its entirety, and no further reliefs will be available.
If you have an appropriate property and letting activity outside the UK it is essential that you move quickly to capitalise on the retrospective relief. The deadline for claiming FHL treatment for income or corporation tax in 2006/07 is 31 July 2009. Later years can be claimed by amending the relevant tax returns. Do ask for advice as soon as possible.
Date:28 May 2009
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