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Home | News & events | Legal updates | Good news and bad news for FHL property businesses

Good news and bad news for FHL property businesses

16 August 2010

There is good and bad news for operators of furnished holiday lettings (FHL) property businesses in the Government's recently published proposed changes to the special FHL tax rules.

Good news

The previous government had announced the repeal of the FHL rules from April 2010 with the result that FHL businesses would be taxed in the same way as other property businesses rather than being taxed as a trade.

However, following heavy lobbying from FHL businesses and the tourism industry about the adverse impact any such repeal would have, the coalition Government has decided not to repeal the FHL rules after all. This is clearly a welcome development for the FHL sector.

Bad news

Part of the motivation for the previous government’s repeal was that, whilst originally the FHL rules applied only to UK businesses, the rules had to be extended to all properties within the EEA in order to comply with EU law. However, this change which came into effect on 22 April 2009 made the regime, in the previous government’s eyes, unaffordable.

The current Government agrees that to leave the rules unchanged would not be ‘fiscally responsible’, so has proposed the following main changes:

• the minimum number of days which a property must be available for letting is to be increased from 140 to 210 days per year
• the minimum number of days a property must actually be let for is to be increased from 70 to 105 days per year
• instead of the current rules under which losses from a FHL business is treated as a trading loss and may be set against other profits, income or gains, losses made in a UK FHL business will only be able to be set against future profits from the same UK FHL business, whilst losses from a EEA FHL business will only be able to be set against future profits from that EEA FHL business

There are also proposed changes to the way the capital allowance regime applies to assets used in FHL businesses.

Conclusion

For those operators of FHL businesses that continue to qualify under the new rules these announcements are clearly good news, but given the 50% increase in the days which a property must both be available for letting and actually let for (reflecting the fact that, according to the Government, ‘changes in the tourism industry since the rules were introduced in 1984’ means that the current rules are ‘no longer in line with the modern tourist industry’), there are a likely to be a large number of businesses which will now fall outside of the FHL regime. Such businesses will be in no better position under this Government than they would have been had the previous government’s repeal not been reversed.

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

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Tom Wilde

Associate
T: 03700 86 8713
I: +44 (0)118 965 8713
E: tom.wilde@shoosmiths.co.uk