Furnished holiday lettings (FHL) can be taxed as a ‘trade’ rather than as normal letting of property which is treated as investment income.
However, to be a FHL ‘trade’ each property must be available for letting for 210 days in a year (140 days before 6 April 2012), and must be actually let for 105 days in a year (70 days before 6 April 2012). The actual number of days let can be averaged across a number of properties owned by the same person, but each property must be available for letting for the minimum period individually.
Owners can make a ‘period of grace’ election, which assumes the property qualifies as part of the FHL trade if it was actually let for the required minimum days in the previous year or the year before that. The election for 2011/12 must be made by 31 January 2014.
Where the entire FHL business ceases – maybe because the conditions aren’t met – and the properties are disposed of within three years, it should be possible to enjoy Entrepreneurs’ Relief. This ensures CGT is charged at only 10% on the gain – provided that the disposal is timed correctly.