PIM4130 - Furnished holiday lettings: relief for losses for 2010/11 and earlier

Summary
Furnished holiday lettings losses against general income
Sideways set off of furnished holiday lettings loss (IT cases)
Which years sideways furnished holiday letting loss is used
Claims & time limits for sideways set off of furnished holiday loss
Furnished holiday lettings - carry back losses of first four years
Furnished holiday lettings - terminal losses
Claims & time limits for carry back of furnished holiday letting losses
Furnished holiday letting losses set against CG
Other guidance
Class 4 NIC
Claims under ICTA88/S381 or ITA07/S72

Summary

The guidance that follows only applies to 2010/11 and earlier. Please see PIM4113 for 2011/12 and later. 

If a taxpayer has a loss on furnished holiday lettings and a greater profit on other rental income, the loss would otherwise be relieved in the overall calculation of rental business profits. However, the taxpayer can claim relief for the loss separately against:

  • general income, which could result in relief at an earlier time than if the loss were absorbed in the rental business computation (IT cases),
  • total profits, under ICTA88/S393 (CT cases),
  • CG, under FA91/S72 or TCGA92/S261D (IT cases).

If a claim is made look under the ‘other guidance’ heading below.

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Furnished holiday lettings losses against general income

Furnished holiday lettings are treated like a trade for loss purposes and get the same loss reliefs as trades. See:

  • ICTA88/S503 (1) for CT cases (and IT cases up to 2004-05)
  • ICTA88/S504A (1) for IT cases (for 2005-06 and 2006-07), and
  • ITA07/S127 (3) for IT cases (for 2007-08 onwards).

Thus, where a rental business includes sources of furnished holiday lettings, any IT losses arising in that part of the business may be relieved either sideways or backwards against general income. Otherwise the losses will be relieved against any other rental business profits for the year.

Any surplus of unrelieved loss is carried forward and set off against rental business profits of subsequent years so long as the rental business continues.

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Sideways set off of furnished holiday lettings loss (IT cases)

Where a taxpayer lets property as a furnished holiday letting (see PIM4100) and makes a loss on all properties let as furnished holiday accommodation taken together they can choose whether to set that loss:

  • against their general income, or
  • any losses not claimed against general income must be set first against any other profits of their rental business in the same tax year; any balance remaining is carried forward against the first available profits.

Their furnished holiday lettings loss may consist, wholly or partly, of plant and machinery capital allowances. Do not use ICTA88/S384 (6) or ITA07/S75 to attempt to exclude the capital allowances element of a loss from sideways relief. These provisions are omitted from the property loss relief rules by:

  • ICTA88/S503 (3) for years up to 2004-05,
  • ICTA88/S504A (3) for 2005-06 and 2006-07, and
  • ITA07/S127 (4) for 2007-08 onwards.

The whole loss, including the capital allowances, can be set against any other profits of their rental business for the same year or, if appropriate, carried forward and set against profits of the same business in later years (PIM4210).

Where the rental business is made up solely of furnished holiday lettings any losses can either be set against general income or carried forward.

Where the rental business is made up partly of furnished holiday lettings and partly of other land and property the taxpayer can choose whether to set any loss made from their furnished holiday lettings against their other general income. Any losses not claimed against general income must be first set against any other profits of their rental business in the same tax year. Any balance of loss is carried forward against the first available profits of the same rental business in later tax years.

The distinction between ordinary lettings and furnished holiday lettings may be important in some situations because the taxpayer may be able to save tax by making the right choice.

For example, this may be the case when the taxpayer has ordinary rental business profits of £1,000 (not furnished holiday lettings) in the current tax year and also ordinary rental business losses of £1,000 brought forward from an earlier tax year. The earlier rental business losses will reduce their ordinary rental business profits of the current year to nil. Then a loss of, say, £500 arising from their furnished holiday lettings can be set off sideways against their general income.

If, instead, they let their furnished holiday lettings losses merge into their general rental business result, the outcome would be:

  • a net rental business loss of £500 (current profit of £1,000 less loss brought forward £1,000 and furnished holiday lettings loss of £500),
  • no sideways losses to set against general income, and
  • a loss of £500 to carry forward to the next tax year.

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Which years sideways furnished holiday letting loss is used

Relief for furnished holiday lettings losses against general income (excluding rental business income) is given in the same way as trading losses.

The taxpayer can claim to set their furnished holiday lettings losses against their other general income for either the tax year in which the loss was made or the year before the year the loss arose.

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Claims & time limits for sideways set off of furnished holiday loss

The time limit for making a claim is 5 days less than 22 months after the end of the tax year in which the loss arose (by 31 January).

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Furnished holiday lettings - carry back losses of first four years

When a taxpayer first lets a property as a furnished holiday lettings and they make a loss in any of the first four tax years after the start of their rental business, they can set this loss against their other income of the three tax years before the year of loss. This means they may be able to get back tax paid on income received before they started the furnished holiday lettings. See:

  • ICTA88/S381 for years up to 2006-07, and
  • ITA07/S72 for 2007-08 onwards.

In deciding which are the first four years for the purposes of the carry back relief, only look at properties let as furnished holiday lettings. Don’t count other lettings. But you have to look at all the furnished holiday lettings and the four-year commencement period begins with the first letting of any of these properties as furnished accommodation. It does not matter whether that letting qualified at the time as a furnished holiday letting. See:

  • ICTA88/S503 (3) for years up to 2004-05,
  • ICTA88/S504A (3) for 2005-06 and 2006-07, and
  • ITA07/S127 (5) for 2007-08 onwards.

For more about when a rental business starts see PIM2505.

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Furnished holiday lettings - terminal losses

Special rules may also apply if the furnished holiday letting ceases and the taxpayer has made losses. See:

  • ICTA88/S388 for years up to 2006-07, and
  • ITA07/S89 for 2007-08 onwards.

For more about when a rental business ends see PIM2510.

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Claims & time limits for carry back of furnished holiday letting losses

The time limit for making a claim is 5 days less than 22 months after the end of the year of loss (by 31 January) in all cases.

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Furnished holiday letting losses set against CG

If the taxpayer’s losses exceed their income they can also choose to set their losses against their CG. See:

  • FA91/S72 (1) for years up to 2006-07, and
  • TCGA92/S261D for 2007-08 onwards.

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Other guidance

If loss relief is claimed, proceed as for any trade loss (but see the guidance below regarding Class 4 NIC). For claims under:

  • ICTA88/S380 or ITA07/S64, see BIM75410 onwards.
  • ICTA88/S381 or ITA07/S72, see BIM75450 onwards (and the further guidance below).
  • ICTA88/S388 or ITA07/S89, see BIM75480 onwards.
  • ICTA88/S393 (CT cases), see CTM04000 onwards.
  • FA91/S72 (1) or TCGA92/S261D, see BIM75420 onwards.

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Class 4 NIC

As indicated at PIM4120, Class 4 NIC is not payable on furnished holiday lettings profits. Similarly, furnished holiday lettings losses, which are being claimed against general income, will not be allowable for Class 4 purposes.

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Claims under ICTA88/S381 or ITA07/S72

Loss relief under Section 381 is normally available where a trade was set up and commenced in the year of assessment concerned or in the previous three years. In the case of furnished holiday lettings this rule is modified by:

  • ICTA88/S503 (3) for years up to 2004-05,
  • ICTA88/S504A (3) for 2005-06 and 2006-07, and
  • ITA07/S127 (5) for 2007-08 onwards.

No Section 381 relief is available if any of the accommodation was first let as furnished accommodation more than three years before the year of assessment. So the relief may be precluded, for example, if the accommodation had earlier been let furnished other than as holiday accommodation. (This rule applies however long ago the first furnished letting took place.)