At the end of last year, the government published draft clauses for its Finance Bill 2011, including proposed revisions on furnished holiday lettings. Richard Baker from legal firm Stephens Scown examines what this will mean for farmers who own properties in the South West.

With the new tax revision planned to take effect from April this year, holiday property owners in the Westcountry may need to review their situation before it is introduced. Farmers who lease out cottages or other farm buildings will be affected by the FHL changes – they may have to change the way they operate or risk losing valuable tax reliefs. The amendments are being introduced to bring the UK into line with EU law.

At the moment, provided the holiday accommodation is run commercially, as opposed to a hobby or let only to friends and family, FHL rules allow owners to treat the property or properties as a trade rather than investment. It means owners can qualify for loss relief against general income, capital allowances on plant and machinery and certain Capital Gains Tax reliefs.

The law will be changed by the Finance Bill 2011 so that:
The minimum period over which a qualifying property must be available for letting to the public in the relevant period is increased from 140 days to 210 days in a year from April 2012
The minimum period over which a qualifying property is actually let to the public in the relevant period is increased from 70 days to 105 days in a year from April 2012
Losses made in a furnished holiday lettings business may only be set against income from the same furnished holiday lettings business; and
A period of grace will be introduced to allow businesses that don’t continue to meet the ‘actually let’ requirement for one or two years to elect to continue to qualify throughout that period.

It’s really important that people get the right professional taxation advice at the earliest opportunity. Some businesses may need to undertake additional valuations and other calculations and I would always advise doing this sooner rather than later.