The benefit of the scheme is that it allows the business to be considered as a trade (with some restrictions) and in particular benefit from capital allowances on fittings, furnishings and also tools (such as vans) but also have access to capital gain reliefs such as rollover relief and business taper relief. While in the past it was also possible to offset losses against total income (not just rental income), this is not possible anymore since April 2011 and losses can only be offset against the same FHL business (UK and EEA FHLs are considered separate businesses).
For a property to qualify as a furnished holiday letting, it must be:
- Furnished
- In the UK or EEA (EU plus Norway, Lichtenchtein and Iceland )
- Available for commercial letting to the public, as holiday accommodation, for at least 140 days a year
- Commercially let as holiday accommodation for at least 70 days a year (the rent must be charged at market rate)
- A short term letting of no more than 31 days
It is important to note that those rules will change from April 2012 and the property will then have to be:
- Available for letting for at least 210 days a year
- Commercially let for at least 105 days a year
While the new scheme is a lot more stringent, a two year period of grace will apply from April 2012 where a trader breaches the 105 day test but meets all the other test. This essentially grants FHL status for the next two tax years provided the person has been trying to let the porperty for the minimum necessary (105 days) and as long as the business had been qualified for a 'base year'.
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