FHLs enjoy several tax benefits, but you must adhere to strict day count limits for availability and letting.
Due to the current crisis, many FHLs will not be able to meet the qualifying day counts in this tax year. As a reminder the conditions to be met are:
The availability condition
Your property must be available for letting as furnished holiday accommodation for at least 210 days in the year.
Don’t count any days when you’re staying in the property. HM Revenue and Customs (HMRC) don’t consider the property to be available for letting while you’re staying there.
The letting condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.
Don’t count any days when you let the property 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.
There is however a ‘period of grace election’ if the letting condition is not met. Broadly, if you are unable to meet the letting condition but genuinely intended to make it, as long as the pattern of letting and availability conditions were met previously, the property will qualify as a FHL anyway. If the FHL conditions were genuinely met in year 1, it is possible to make a period of grace election in years 2 and 3.
If a period of grace election was required for 2019/20 and will also be required for 2020/21, if lettings do not pick up sufficiently next year, an election will not be possible in 2021/22.
Availability days may also be a problem for 2020/21 depending on how long the lockdown continues.
Although HM Revenue and Customs have extended some time limits for other taxes due to Covid, no formal HMRC guidance is currently available for furnished holiday lets. Hopefully this will be addressed before too long otherwise there could be unintended tax consequences for many property owners.
If you own a furnished holiday let and are unsure of the implications or require any tax planning advice please contact us.