PIM4120 - Furnished holiday lettings: calculating profits and losses
A separate calculation is required
The taxpayer needs to calculate the profit or loss arising from qualifying furnished holiday lettings separately from their other rental business profits and losses to see whether they can take advantage of the special rules. But any overall profit is included in the general rental business result; and so is any loss unless they use it separately against other income.
The normal rules for calculating rental business profits should be used. Bear the following points in mind.
All the furnished holiday lettings by a particular person or partnership are treated as one trade for the purpose of giving relief. Once a particular property qualifies, all the income from that property will qualify for the special treatment for that year, including lettings outside the period when the furnished holiday lettings conditions are met. See:
- ICTA88/S503 (1)(b) for CT cases (and IT cases up to 2004-05),
- ICTA88/S504A (1)(b) for IT cases (for 2005-06 and 2006-07), and
- ITA07/S127 (3) for IT cases (for 2007-08 onwards).
Class 4 NIC
Although the income is treated in many ways as if it were from a trade, it remains assessable as rental income, so Class 4 NIC is not payable.
Property closed for part of the year
Where a property is kept solely for letting as furnished holiday accommodation, but is in fact closed for part of the year because there are no customers or no business, allow the whole of expenses such as insurance, interest, etc. provided there is no private use.
Part only of property let
Where only part of a property is let as furnished holiday accommodation, receipts and expenditure should be apportioned on a just and reasonable basis. See:
- ICTA88/S503 (6) for CT cases (and IT cases up to 2004-05),
- ICTA88/S504A (4) for IT cases (for 2005-06 and 2006-07), and
- ITA07/S127 (7) for IT cases (for 2007-08 onwards).
The Commissioners on appeal can review the apportionment.
If plant and machinery on which capital allowances are claimed is partly used for private purposes (for example outside the holiday letting season) an appropriate fraction only of the capital allowances will be due, as with any capital allowances claim where there is private use.
Strictly, if a property qualifies in one year but does not do so in the next, the disposal value of plant and machinery should be brought into account. If income from a property temporarily ceases to qualify solely because not all the tests are satisfied for that year, capital allowances may be continued. But if a property is let on a long-term basis, or sold, or otherwise seems unlikely to qualify in the foreseeable future, disposal value should be brought into account.
If the computation shows a loss, see PIM4130 for details of loss relief.