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HMRC internal manual

Property Income Manual

Furnished holiday lettings: historic qualifying tests for IT

ITTOIA/S323-326

Qualifying Tests for IT taxpayers from tax years 2005-06 to 2010-11

Summary

To qualify as a FHL a property must:

  • be let on a commercial basis with a view to realisation of profits

  • be furnished - there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture

  • pass the 3 occupancy conditions

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Occupancy conditions

Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions:

  • Pattern of occupation condition

  • Availability condition

  • Letting condition

The pattern of occupation condition

The total of all lettings that exceed 31 continuous days must not exceed 155 days during the year.

The availability condition

The property must be available for letting as furnished holiday accommodation letting for at least 140 days in the year.

Don’t count any days when the customer is staying in the property.

The letting condition

The property must be let commercially as furnished holiday accommodation to the public for at least 70 days in the year.

Don’t count any days when the property is let to friends or relatives at zero or reduced rates as this isn’t a commercial let.

Don’t count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either:

  • falls ill or has an accident, and can’t leave on time

  • has to extend their holiday due to a delayed flight

If the property isn’t let for at least 70 days an averaging election may be made if the customer has more than one property. The details how this works is set out below

Period to which the occupancy conditions are applied - for IT cases

For a continuing let, apply the tests to the tax year - that’s from 6 April one year to the 5 April the next.

For a new let, apply the tests to the first 12 months from when the letting began.

When the letting stops, apply the tests to the 12 months up to when the letting finished.

Examples

1) A property has been let furnished on a commercial basis since 2006. For 2008-09 the tests are applied to the year of assessment 2008-09  itself.

2) A property is acquired on 1 January 2009 and is let furnished on a commercial basis from 1 March 2009. To determine whether the letting qualifies for 2008-09 tax year the tests are applied to the twelve months from 1 March 2009 (1 March 2009 to 28 February 2010). For 2009-10 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 2007 and the property is sold on 1 December 2007. To see if 2007-08 qualifies, the tests are applied to the twelve months ended on 30 September 2007 (1 October 2006 to 30 September 2007).
 

Averaging election

If more than one property is let as a FHL, and one or more of these properties doesn’t meet the letting condition of 70 days, the customer can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. This is called an averaging election.

Example

Emma lets 4 UK holiday cottages in 2008-09 for the following number of days:
 

Cottage 1 80 days
   
Cottage 2 85 days
Cottage 3 75 days
Cottage 4 40 days
Total 421 days

If Emma uses averaging, all 4 cottages will meet the letting condition (280 days divided by 4 = 70). Without averaging, cottage 4 would not qualify.

Time limit

A customer may make an averaging election up to one year after 31 January following the end of the tax year.

Property stops being a FHL

A property will no longer be a FHL if the:

  • property is sold

  • property is used for private occupation

  • letting condition isn’t met even with the averaging and period of grace elections

If the property doesn’t qualify as a FHL or stops being a qualifying FHL, the special tax treatment will no longer apply. The customer will need to work out any balancing allowance or balancing charge for capital allowances (see CA23210) and any Capital Gains Tax reliefs will be affected (see CG63950P onwards in respect of entrepreneurs relief; CG60250C onwards for business asset roll over relief; CG66450C onwards for gifts and similar transactions; and CG50200C for securities and shares).