Furnished holiday lettings (FHLs) have their own tax treatment which is reliant on a set of strict day-count rules. With the impact of COVID-19 on occupancy levels, business owners may need to take stock of their position.
- Pattern of occupation – the total of lets of more than 31 continuous days must not exceed 155 days a year
- Availability – the property must be available for let for at least 210 days in the year (excluding any days you stay there yourself)
- Letting – the property must be let commercially as furnished holiday accommodation to the public for at least 105 days a year. This should not include days let to friends or relatives at zero or reduced rates. Nor can it include lets longer than 31 days (unless the 31 days extend due to unforeseen circumstances, such as a guest becoming ill and unable to leave on time).
For established lets, tests apply to the tax year (for income tax) and also to the 12 months of the accounting period (for corporation tax). There are slightly different rules on commencement and cessation.
If your day count to 5 April 2021 falls short of the letting condition, a ‘period of grace election’ could preserve your property’s FHL status. However, you must still meet the other two conditions.
The election can be available where you have a genuine, demonstrable intention to let but can’t, for example because of cancellations due to unforeseen circumstances. For the tax year to 5 April 2021, this can include enforced closures due to COVID-19 measures such as lockdown or travel bans. If you have more than one FHL, you may be able to use an averaging election to similar effect.