If you have a furnished holiday let (FHL), it is likely you have been affected by the COVID-19 outbreak and not just in relation to the break in income from your FHL but because HMRC have a number of rules in relation to the definition of a FHL and the occupancy days of the property which are prescribed in order to qualify tor tax relief.

Tax relief for FHL’s are as follows:

The point within the HMRC guidance which is most relevant to COVID is that If you do not let your property to the public for at least 105 days in the tax yearit is not deemed to be a FHL. This period of 105 days does not include any days when the property is let to friends or relatives for free or at a reduced rate or, if the property is let for more than 31 days continuously. There are allowances on exceeding the 31 days if something unforeseen happens. For example, if the holidaymaker falls ill or their holiday is forcibly extended due to a change in their flight.

However, you have two options (known as 'elections') that can help you reach the occupancy threshold.

The averaging election

If you let more than one property as a FHL, and one or more of these properties doesn’t meet the letting condition of 105 days, you can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs.

A period of grace election

You may be able to make a period of grace election that allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions were met. To make an election, you must be able to show that you had a genuine intention to let the property in the tax year. For example, where you have marketed a property to the same or a greater level than in successful years, or where the lettings are cancelled due to unforeseen circumstances such as COVID-19.

You can make an election where the property met the letting condition in the year before the first year you wish to make a period of grace election (either on its own or because of an averaging election). If your property again does not meet the letting condition in the following year, you can make a second period of grace election (as long as you made an election in the previous year).

If your property does not reach the threshold by the fourth year, after two consecutive period of grace elections, it will no longer qualify as a FHL.

It is important to gain professional advice to take advantage of an election to ensure that you are a) entitled to an election and b) have the correct evidence in place to satisfy HMRC. I deal with a large portfolio of property clients and this in an area I can help with. Contact me for more information via emily.hillier@shawgibbs.com or call 01865 292 200