The HMRC should not impose a new tax on holiday letting owners.
This tax could be a hard hit for the hospitality industry.
The Chancellor should use the Budget to relax the conditions for rental properties to qualify as furnished vacation rentals (FHL), said leading tax and advisory firm Blick Rothenberg.
To qualify as FHL, properties must be available for rental to third parties for at least 210 days per year, they must be commercially rented to the public for at least 105 days per year, and rentals that exceed 31 continuous days must not exceed 155 days during the year.
This means that many people are likely not meeting these expectations thanks to pandemic-induced lockdowns.
“A new tax is not fair at all.”
Fiona Fernie, a partner at Blick Rothenberg, said: “FHLs are becoming more popular as a result of sites like Airbnb and Booling.com, and as overseas travel continues to be prohibited as a result of coronavirus restrictions, it is likely that are more in demand this summer than ever before.”
“The problem is that due to the strict tests imposed by the HMRC, property owners are likely to lose their tax status, which would give them a higher tax burden through no fault of their own.”
“In view of the devastating impact of the pandemic on the hotel industry, it seems reasonable that the Chancellor and the HMRC create a concession for 2020/21 and 2021/22 so that this does not happen.”
“The problem is this, the government has encouraged FHL ownership, by providing tax benefits compared to properties normally rented or in a secured tenancy, including generous treatment of mortgage interest as a fully allowed deduction, the potential of a lower capital the tax rate on the gains on the sale and the income that is taken into account when making the pension contributions.”
Fernie added: “Under normal circumstances if the owner does not rent the property for at least 105 days, he has two options for making choices that can help him reach the occupancy threshold; the averaging election (averaging the occupancy levels across all your properties) and the grace election period (an election to allow the property to continue to qualify as FHL as long as the occupancy pattern and conditions of availability are met).”
“The averaged election is unlikely to be of any help under the current circumstances as all of those properties are likely to have been affected by reduced occupancy in 2020/21.”
“A grace election period can help, but it can only be done under certain conditions that may be difficult for some start-up owners.”
“There are also serious questions about the other two conditions. For example, during periods when government advice has been that people cannot or should not take vacations in particular places, can landlords say their property was available for rent, let alone occupy?”
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