Letting Condition
Since 2015, the requirement has been 105 days
Since 2012, it has been a requirement to let out a furnished holiday let as commercial accommodation for 105 days (previously 70 days). The letting period cannot include letting to friends or relatives at reduced or zero rates. Longer term lets of more than 31 days are not included in the qualifying period unless it is because of circumstances where someone is unable to leave on time. For example, if a delayed flight means a holidaymaker has to extend his or her stay, or if someone suffers an accident and is not able to leave on time.
If you are unable to meet the letting condition of 105 days, there are two options to consider that may help towards meeting the criteria
- Averaging Election. If you have more than one FHL
- Period of Grace Election. Where your property has satisfied the occupancy condition in some years, but not in all years.
Averaging Election
Who is eligible?
You can elect to apply an Averaging Election if you have more than a single FHL and one of the properties does not meet the 105-day letting condition. Note that you can only apply this condition if all the properties are in a single FHL business, and in the UK and European Economic Area (EEA). Properties can’t be mixed together for the purposes of the calculation.
Example:
An individual has 3 FHL properties they have let out in 2022/23. The number of letting days are as follows:
On its own FHL 3 does not qualify as it has been let for less than 105 days. However, using the averaging election it would qualify using the calculation 336 days by 3 = 112 days.
It should also be noted that the election can only be made in an open tax return. This means that after 31 January you have one year left to make an election. For example, after filling in your tax return for 2022/23 and filing it by 31 January 2024. Meaning you will have until 31 January 2025 to submit an election.
Period of Grace Election
What are the conditions?
A Period of Grace Election can be considered if you have satisfied the other qualifying conditions. Intended to meet the 105-day letting condition but were unable to.
You must be able to demonstrate that you were genuinely unable to let out the property for the required number of days. Due to circumstances such as bad weather, unforeseen cancellations by holidaymakers’ etc. Despite having marketed the property to the same level as in prior years.
To make a period of grace election you would need to have met the letting condition in the year before you wish to make the election. You can also make a second period of grace election if your property still does not meet the letting condition the following year. As long as you made a ‘first’ election in the year before. If your property doesn’t meet the letting condition after 2 consecutive periods of grace it will no longer qualify as an FHL.
If you have several properties, you can use both the averaging and period of grace elections to ensure that your property continues to qualify.
Example
In the example below, an individual has 3 furnished holiday lets. In some years FHL 3 doesn’t meet the letting condition. However, they can use both the averaging election and the period of grace election to ensure that FHL 3 continues to qualify.
Some Other Scenarios to Keep in Mind...
Property Not Used for Part of the Year
If for some reason you have not rented out a property for a whole year, you can deduct all the expenses (loan interest, insurance, utility costs) for the whole year. Provided you have not lived in the property.
Property Ceases as an FHL
If your property ceases to qualify as an FHL the special tax treatment will also cease. This may be because you have sold the property, or not met the letting condition (even after applying the averaging and/or period of grace elections). Or, thirdly, the use of the property becomes residential. At this point, it will be necessary to work out any balancing charge or balancing allowance for capital allowances.
If you have any further questions, please get in touch...
Latest News
-
5 December 2024What Are Qualifying Activities for Capital Allowances?
Capital allowances are a key tax relief available to businesses for qualifying activities. They allow businesses to deduct the cost of certain capital expenditures related to these activities from their taxable profits, reducing their overall tax burden. However, not all purchases or investments qualify.... -
3 December 2024How Do CARS Assess Capital Allowances?
At CARS, we assess capital allowances and offer businesses and property owners a significant opportunity to reduce their tax liabilities by deducting qualifying capital expenditures. Here at Capital Allowance Review Service (CARS), we provide a thorough process to optimise these claims. Our goal is to...
Contact Us
Our expert team are here to help answer any of your capital allowances questions or enquires you have about your commercial property.