Get set for new holiday letting regulations

Owners of holiday-let accommodation in Northumberland are being warned of new tax rules which come into force in April.

Furnished holiday lets have tax advantages over other lettings but the special rules for qualification, increasing the amount of time a property must be let, are changing from April 6, 2012.

As part of the Finance Bill 2011, tax rules for furnished holiday lettings (FHLs) will be brought in line with EU law: The minimum period when a property is available to let will be increased from 140 to 210 days; the minimum period when a property actually has to be let will be increased from 70 to 105 days; and the use of loss relief will be restricted to income from the same business.

Alistair Cochrane, of land agency firm Strutt & Parker’s Morpeth office, said: “The benefit of an FHL business is that it is treated mostly as a trade rather than a property business.

“As a result, capital allowances are available for expenditure on plant and machinery used in the letting activity, including furniture and white goods.

“Income from the business is treated as relevant earnings for pension purposes and qualifies for entrepreneurs’ relief as well as relief for gifts of business assets.

Mr Cochrane added: “In the past, any loss arising from an FHL business could be offset against the tax payer’s other income.

“However, from April 6 it will only be possible to offset a loss against future profits arising from the same business, not any other income.

“To qualify for relief, the property must also be available for letting for at least 210 days and actually let for at least 105 days.”

However, there is some leeway if the owner has been unable to let a previously qualifying property for the required number of days, said Mr Cochrane.

“Where this election is made the property will be treated as an FHL for a further two years as long as there is a genuine intention to let it for the prescribed time.

“For those with a number of let properties, it is of note that the owner is able to calculate and use the average rate of occupancy across all properties for tax purposes.”

For more information and advice contact your accountant or Strutt & Parker’s Morpeth office on 01670 500870.