With England currently in the middle of lockdown two and Wales just emerging from their second lockdown, COVID-19 has had an additional impact on holiday accommodation and furnished holiday lets (“FHLs”).
Broadly, FHLs qualify if the tenants are entitled to use the furniture and:
- The accommodation is available for commercial letting to the public generally as holiday accommodation for at least 210 days in the tax year;
- The accommodation is actually commercially let as holiday accommodation for at least 105 days in the tax year; and
- During the tax year the property should not be used by the same tenant for more than 31 days since if the property is let to the same tenant for more than 31 days but less than 155 days, these days will not usually count for point 2 above. If let for more than 155 days to the same tenant the property will no longer qualify as an FHL.
Whilst clients may have met all the criteria in previous tax years, this year could be significantly different. Due to the tax breaks afforded to an FHL, we have seen HMRC take a very strict line on clients meeting the qualifying conditions in previous tax years.
In the current tax year, with FHLs closed for April, May and June and now November, condition 2 could prove problematic for clients during the tax year to 5 April 2021 and we have not heard of any changes to the legislation concerning the statutory number of days (105) that must be met in relation to the pandemic.
Period of grace election
However, HMRC have provided some informal guidance; they indicate that there may be the opportunity to make a “period of grace” election where the conditions in the previous tax year have been met but not met in the current tax year or the one after.
Where clients genuinely intended to let the property but were unable to do so due to the coronavirus pandemic they will be able to make a period of grace election to enable the property to qualify as an FHL as long as conditions 1 and 3 above are met.
How to make a period of grace election
In order to make the election, clients will need to show that they had a genuine intention to let the property in the year. We recommend that clients keep copies of the cancellations due to COVID-19. HMRC will accept a period of grace election for 2020/21 where the property met condition 2 in 2019/20. In addition, if clients are unable to let their FHLs in 2021/22 they can make another period of grace election for 2021/22.
A period of grace election can be made on the self-assessment “UK property” pages for the tax year in question. Alternatively, it can be made separately up to one year after 31 January following the end of the tax year, therefore for the 2019/20 tax year the election must be made by 31 January 2022.
Contact us to discuss your FHL
You can also view our webinar on the tax implications of holiday accommodation.