PIM4112 - Furnished holiday lettings: qualifying tests - IT cases for 2005-06 onwards


Summary
Qualifying tests
Holiday accommodation
Periods of longer-term occupation
Period to which tests are to be applied
Examples
Averaging
Time limit for averaging claims
Example illustrating the averaging rule

Summary

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
  • let for periods of longer-term occupation (more than 31 consecutive days) for not more than 155 days during the year.

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 rule and the 155 day rule. The taxpayer may claim averaging treatment in order to satisfy the 70 day rule.

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Qualifying tests

The conditions to be met are set out in ITTOIA05/S325 and all three must be satisfied if a letting is to qualify:

  1. The availability condition is that, during the relevant period, the accommodation is available for commercial letting as holiday accommodation to the public generally for at least 140 days.
  2. The letting condition is that, during the relevant period, the accommodation is commercially let as holiday accommodation to members of the public for at least 70 days.
  3. The pattern of occupation condition is that, during the relevant period, not more than 155 days fall during periods of longer-term occupation.

The period for which the tests are to be applied is considered below.

A ‘period of longer-term occupation’ is a continuous period of more than 31 days during which the accommodation is in the same occupation (otherwise than because of circumstances that are not normal).

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Holiday accommodation

For the purposes of the letting condition, a letting of accommodation for a period of longer-term occupation is not a letting of it as holiday accommodation.

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Periods of longer-term occupation

The aim of the pattern of occupation condition is to ensure that properties that are normally let on a long-term basis (for example, to students during term time) do not qualify.

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 the definition of a ‘period of longer-term occupation’ 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 word 'normal' in the definition of a ‘period of longer-term occupation’ 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 'normal' 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.

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Period to which tests are to be applied

ITTOIA05/S324 specifies the period to which the tests must be applied to determine whether a letting qualifies in any year of assessment.

  • 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.

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Examples

1) A property has been let furnished on a commercial basis since 2000. For 2006-07 the tests are applied to the year of assessment 2006-07 itself.

2) A property is acquired on 1 January 2006 and is let furnished on a commercial basis from 1 March 2006. To determine whether the letting qualifies for 2005-06 the tests are applied to the twelve months from 1 March 2006. For 2006-07 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 2006 and the property is sold on 1 December 2006. To see if 2006-07 qualifies, the tests are applied to the twelve months ended on 30 September 2006.

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Averaging

Where a person has a number of units of accommodation that are let for holiday purposes:

  • each of them must separately satisfy the availability condition and the pattern of occupation condition, but
  • if some are individually let for less than 70 days, ITTOIA05/S326 allows the landlord to apply the letting condition 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 - ITTOIA05/S326 (5).

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Time limit for averaging claims

The time limit for making a claim is one year from 31 January following the year of assessment.

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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
Total 288 days
Average 288 ÷ 4 = 72 days

By averaging the four all will qualify. Without averaging, No 4 would not qualify.