PIM4105 - Furnished holiday lettings: introduction
For 2011-12 and following please refer to PIM4113.
Properties that meet the qualifying tests for furnished holiday lettings are charged under the property income or Schedule A rules.
Trading principles apply to furnished holiday lettings in just the same way as they apply to other lettings. Hence the explanations given in the rest of this manual about the way receipts and expenses are dealt with apply equally to furnished holiday lettings.
But furnished holiday lettings have some tax advantages over other lettings. The major advantages under the special rules are:
- Entitlement to plant and machinery capital allowances on furniture, furnishings, etc in the let property, as well as on plant and machinery used outside the property (such as vans and tools); but there are no capital allowances for the cost of the property itself or the land on which it stands; there is more about capital allowances generally at PIM3000 onwards.
- Losses can be set against total income and are not restricted to the rental business; PIM4200 onwards deals with normal rental business losses and PIM4130 deals with furnished holiday lettings losses.
- CGT reliefs for traders such as rollover relief and business taper relief. Full guidance can be found in the CG manual - see CG73500 onwards.
A letting is regarded as a furnished holiday letting where the property is furnished and the letting meets all three qualifying tests - see PIM4110.
Legislation - CT cases and IT cases up to 2004-05
The rules for furnished holiday lettings are found in ICTA88/S503 - S504.
Legislation - IT cases for 2005-06 and 2006-07
The rules for furnished holiday lettings are found in:
- ICTA88/S504A (circumstances in which furnished holiday lettings treated as a trade), and
- Chapter 6 of Part 3 of ITTOIA05 (definition of furnished holiday lettings).
Legislation - IT cases for 2007-08 onwards
The main rules for furnished holiday lettings are found in:
- Chapter 6 of Part 3 of ITTOIA05 (definition of furnished holiday lettings),
- ITA07/S127 (UK furnished holiday lettings business treated as a trade for loss relief purposes).
What are furnished holiday lettings?
The Acts refer to the 'commercial letting of furnished holiday accommodation’ in the UK. Letting outside the UK does not qualify. There does not have to be a formal lease - ICTA88/S504 (9) and ITTOIA05/S323 (1). Holiday accommodation only comes within the furnished holiday lettings rules if certain conditions are met. These are covered in PIM4110.
'Commercial' is defined in ICTA88/S504 (1)(a) and ITTOIA05/S323 (2) as meaning 'let on a commercial basis and with a view to the realisation of profits'. Take a reasonably broad view. Close season lets may produce no profit, but normally contribute towards the cost of maintaining the property. You may normally regard such letting as commercial. On the other hand, do not accept as commercial, lettings to friends or relatives at zero or nominal rents.
Accommodation is 'furnished' if the tenant is entitled to use of furniture. We would expect sufficient furniture to be provided for normal occupation. In practice, with holiday lettings, problems about whether the accommodation is furnished are unlikely to arise.
The words 'holiday accommodation' are not expressly defined. In general, if the other conditions are met, accept the lettings as being of holiday accommodation. If, exceptionally, you think the legislation is being abused, make a report to CTIAA (Technical) before you list any appeal for a contentious hearing.
The basis of assessment is the year ended 5 April, as for all property income. If a partnership is involved see PIM1040.
What special treatment do furnished holiday lettings get?
Furnished holiday lettings are treated like a trade only for certain purposes. Details are given in the table below. But remember that they are not actually taxed as trades (unless, exceptionally, they are treated as a trade on their own facts quite apart from the special legislation - eg if material services are provided), so normal rental business rules apply.
It will generally be necessary to calculate the furnished holiday lettings profit or loss separately from the rest of the rental business.
Partnerships and jointly owned property
For years up to 2006-07 income from furnished holiday lettings is 'earned income' as defined by ICTA88/S833 (4)(c). You should not, therefore, argue that ICTA88/S282A applies so that profits or losses derived from property jointly owned either by husbands and wives or by civil partners should be split on a 50:50 basis. Where a spouse or civil partner carries on the activities of furnished holiday lettings together with others, the profits or losses should be split in the way that the parties agree.
For 2007-08 onwards this is explicitly stated - see ITA07/S836 (3) Exemption D.
Special treatment for furnished holiday lettings
|ICTA88/S379A - S390||Loss reliefs available as for trades - see PIM4130. (1995-96 to 2006-07)|
|ITA07/S127||Loss reliefs available as for trades - see PIM4130. (2007-08 onwards)|
|ICTA88/S623 (2)(c)||Counts as relevant earnings for the purposes of Retirement Annuity Relief. (1995-96 to 2005-06)|
|ICTA88/S644 (2)(c)||Counts as relevant earnings for the purposes of personal pension relief. (1995-96 to 2005-06)|
|ICTA88/S833 (4)(c)||Counts as earned income. (1995-96 to 2006-07)|
|FA04/S189 (2)(b)||Counts as relevant UK earnings for pension purposes. (1995-96 to 2006-07)|
|FA04/S189 (2)(ba)||Counts as relevant UK earnings for pension purposes. (2007-08 onwards)|
TCGA92/S241 specifies the CGT provisions that are applied to furnished holiday lettings as if to a trade. They are as below.
|Section of TCGA92||Subject matter|
|TCGA92/S152 - S157||Roll-over relief.|
|TCGA92/S163 - S164 and TCGA92/SCH6||Retirement relief.|
|TCGA92/S165||Relief for gifts of business assets.|
|TCGA92/S253||Relief for loans to traders.|
|TCGA92/S2A and TCGA92/SCHA1||Taper relief.|
Full guidance can be found in the CG manual (see CG73500 onwards).
Furnished holiday lettings are treated as a trade for the purposes of CAA01 Part 2 - see CAA01/S17. Consequently, any furniture let to the tenants is let 'by way of trade'. Therefore the prohibition that usually prevents capital allowances being given for furniture in a furnished letting does not apply, see PIM3010. The wear and tear allowance is not available as an alternative.
Do not use ICTA88/S384 (6) or ITA07/S75 to attempt to exclude the capital allowances element of a loss from sideways relief.
EEA properties - 2009-10 and following
The rules were extended to cover properties in the EEA for 2009-10 and following - please refer to PIM4113