Furnished holiday lettings – some more clarity
Following the confirmation of the abolition of the special tax rules for Furnished Holiday Lettings (FHL) in the autumn Budget, we look at the response to the government’s consultation on the practical aspects of the legislation.
Since the spring Budget announcement of the proposed abolition of the FHL rules, many of our members have raised concerns with us about the impact of the changes will have on their practice and their clients. This included the lack of clarity on several key points, particularly in respect of the application of the anti-forestalling rule for capital gains tax, which will take effect from 6 March 2024.
Ahead of our response to the consultation on the changes, we hosted a webinar on Tuesday 27 August to provide an overview of the proposals and the issues our members need to be aware of when advising their clients.
Confirmation of the changes in the autumn Budget
The autumn Budget confirmed the government’s intention to proceed with the changes in the draft legislation for the abolition of the special tax rules for Furnished Holiday Lettings, which will cease in April 2025. The legislation in the Finance Bill is largely unchanged from the draft legislation published in July, so this left several practical aspects requiring clarification.
Following the feedback from ICAS and other stakeholders, the government published a policy paper on abolition of the furnished holiday lettings tax regime.
Highlights from the policy paper
Our members asked for clarification on the VAT position. The government has now confirmed that there will be no change to Schedule 9 VATA 1994 in respect of the VAT treatment of holiday accommodation. For VAT purposes, holiday accommodation will continue to be standard rated regardless of whether the property previously qualified for FHL.
There was uncertainty over whether of the furnished holiday lettings rules would in itself constitute a cessation of the business for the purpose of capital taxes. The government has now confirmed that references in legislation to the cessation of business means an actual cessation of business activity. The policy paper highlighted that this is not to be confused with when bookings stop to be taken, but more when there are no longer any bookings or lettings and there is no intention to take further bookings in future. Subject to the anti-forestalling rule, for a taxpayer to qualify for the enhanced capital gains tax reliefs before the rules change in April 2025, the business has to cease before 1 April 2025 for corporation tax or before 6 April 2025 for income tax and capital gains tax purposes.
ICAS is disappointed to note that the government has not taken forward the suggestion to take account of those taxpayers who operate a furnished holiday lettings business as a full-time occupation for the purposes of ‘relevant earnings’ for pension purposes or the ability of a taxpayer to pay Class 2 National Insurance contributions when they run a FHL business but do not have any other sources of employment or self-employment income. We feel that these are areas which need not necessarily have changed the government’s policy intention and also would presumably have limited impact on tax revenues, but will have significant impacts on the individuals affected.
Form 17 – a particular Scottish dimension
We feel that the particular practical aspects of the Scottish dimension of the application of Section 837 ITA 2007 have not been given full consideration. We intend to have further discussions with HMRC on this point, however any feedback from our members on the practical aspects would be welcome.
Let us know your views
We welcome your views, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
