Furnished holiday lettings: qualifying tests - IT cases up to 2004-05
|Period to which tests are to be applied|
|Use of calendar months|
|The seven months test|
|Time limit for averaging claims|
|Example illustrating the averaging rule|
For the period explained in the next paragraph (normally the tax year) the property must be:
- available for holiday letting to the public on a commercial basis for 140 days or more, and
- let commercially for 70 days or more, and
- not occupied for more than 31 days by the same person in any period of 7 months.
The period to be considered for the above tests is:
- in a continuing period of holiday letting: the tax year ended 5 April, or
- in the first year of letting: the twelve months starting with the date of the first letting,
- in the final year of letting: the twelve months ending with the date of the last letting.
The taxpayer may have more than one unit of accommodation let for holiday purposes. If so, it isn’t necessary for each unit to have actually been let for at least 70 days to meet the 70 day rule provided each unit satisfies the 140 day and 7 month rules. The taxpayer may claim averaging treatment in order to satisfy the ‘actual lettings’ test - ICTA88/S504 (6).
The conditions to be met are set out in ICTA88/S504 (3) and all three must be satisfied if a letting is to qualify:
- The accommodation must be available for commercial letting to the public generally as holiday accommodation for not less than 140 days.
- The periods for which it is so let must amount (in the aggregate) to at least 70 days.
- For at least seven months the property must not normally be in the same occupation for more than 31 days.
The period for which the tests are to be applied is considered below.
A property that is let on a long-term basis cannot be regarded as available for holiday lettings. A property that is owner-occupied for part of the year cannot be regarded as available for letting while it is owner-occupied. Nevertheless, the words ‘in the same occupation’ in (c) above should be interpreted as ‘let in the same occupation’ and do not preclude relief to an owner who moves out of his home during the holiday season and returns to live there when the season is over.
Period to which tests are to be applied
For IT cases, ICTA88/S504 (4) specifies the period to which the tests must be applied to determine whether a letting qualifies in any year of assessment (the rules for CT cases are at PIM4115).
- For a normal continuing business, apply the tests to the year of assessment itself.
- At commencement, if the accommodation was not let furnished in the preceding year, apply the tests to the first twelve months from when letting began.
- At cessation, if the accommodation was let furnished in the previous year but is not so let in the following year, apply the tests to the twelve months ending on the date letting ceased.
1) A property has been let furnished on a commercial basis since 1990. For 1996-97 the tests are applied to the year of assessment 1996-97 itself.
2) A property is acquired on 1 January 1996 and is let furnished on a commercial basis from 1 March 1996. To determine whether the letting qualifies for 1995-96 the tests are applied to the twelve months from 1 March 1996. For 1996-97 the tests are applied to the year of assessment itself.
3) A property has been let as furnished accommodation on a commercial basis for many years, but letting ceases on 30 September 1996 and the property is sold on 1 December 1996. To see if 1996-97 qualifies, the tests are applied to the twelve months ended on 30 September 1996.
Use of calendar months
‘Month’ in the context of ICTA88/S504 means ‘calendar month’ - Section 5 and Schedule 1 Interpretation Act 1978. However, a calendar month need not run from the first of the month to the end of that month. It may be treated as meaning a period from a particular date in one month to that date less one day in the following month.
The seven months test
The seven-month period in ICTA88/S504 (3)(c) need not be continuous. The aim of this rule is to ensure that properties that are normally let on a long-term basis (for example, to students during term time) do not qualify.
If the whole or part of a month is a period that is part of a long let, then the 31-day test is not satisfied for that month. The question to ask in the context of any month (whether or not it is part of a longer period) is ‘does the month include any time which is time when the property was normally let for more than 31 days?’
The word ‘normally’ in Section 504 (3)(c) takes its ordinary everyday meaning, so it may be construed as meaning ‘regular’ or ‘usual’. It was inserted to ensure that genuine cases are not denied relief due to exceptional and unforeseen circumstances. In practice, interpret ‘normally’ by reference to the nature of the lettings intended by the owner rather than the actual lettings that take place in any specific period.
Exceptional circumstances where a letting might exceed 31 days and yet still qualify as a furnished holiday let could include a holiday maker who falls ill or has an accident, and so cannot vacate the accommodation on time. There might also be exceptional instances where holiday visitors unexpectedly require a longer vacation. Qualifying lettings exceeding 31 days should, however, be the exception rather than the rule, so review such claims critically.
Where a person has a number of units of accommodation that are let for holiday purposes:
- each of them must separately satisfy the 140 day and seven month rules (see (a) and (c) above), but
- if some are individually let for less than 70 days, ICTA88/S504 (6) allows the landlord to apply the 70-day actual letting test (see (b) above) to the average rate of occupancy of the units.
- A unit cannot be used more than once in the same period in a claim for averaging treatment - ICTA88/S504 (8).
Time limit for averaging claims
The time limit is one year from 31 January following the year of assessment.
Example illustrating the averaging rule
Joe lets four holiday cottages, and all would otherwise qualify as furnished holiday lettings. The actual letting periods are:
|No 1||90 days|
|No 2||78 days|
|No 3||70 days|
|No 4||50 days|
|Average 288 ÷ 4 =||72 days|
By averaging the four all will qualify. Without averaging, No 4 would not qualify.