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HMRC internal manual

Property Income Manual

Furnished holiday lettings: qualifying tests for CT taxpayers up to 2010-11

ICTA88/S504

Qualifying Tests for CT taxpayers up to 2010-11

Summary

To qualify as a FHL a property must:

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

  • be furnished - there must be sufficient furniture provided for normal occupation and the 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

For at least seven months the property must not normally be in the same occupation for more than 31 days

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’ 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.

The availability condition

The accommodation must be available for commercial letting to the public generally as holiday accommodation for not less than 140 days.

The letting condition

The periods for which it is so let must amount (in the aggregate) to at least 70 days.

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

Period to which the occupancy conditions are applied

For a continuing let, the 12 months ending with the last day of the accounting period,

At commencement, 12 months beginning with the date in the accounting period on which it was first let,

On cessation, 12 months ending with the date in the accounting period on which it ceased to be let.

Examples

1) A property has been let furnished on a commercial basis since 2006. For AP ending 31 December 2008 tests are applied for period from 1 January 2008 to 31 December 2008

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 the AP ending 31 May 2009 the tests are applied to the twelve months from 1 March 2009 (1 March 2009 to 28 February 2010). For AP ending 31 May 2010 the tests are applied to the 12 months to 31 May 2010.

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 it qualifies in AP ending 31 March 2008, the tests are applied to the twelve months ended on 30 September 2007 (1 October 2006 to 30 September 2007).

Use of calendar months

‘Month’ in the context of ICTA88/S504 means ‘calendar month’. 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 Pattern of Occupation condition 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 the Pattern of Occupation condition 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.

Averaging election

If a customer lets more than one property as a FHL, and one or more of these properties doesn’t meet the letting condition of 70 days, they 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.

Please note:

  • Even if using the averaging election for the purposes of the letting condition, each unit of accommodation must separately satisfy the 140 day and 7 month rules

  • A unit cannot be used more than once in the same period in a claim for averaging treatment

Time limit

An averaging election can be made up to one year after the filing date for a particular AP.