Farmers can find holiday lets less taxing

With many farmers struggling in the current economic climate, many are diversifying their businesses with furnished holiday lets becoming increasingly popular, writes David Whitfield of chartered acountants Whittingham Riddell.

Under current legislation there are certain tax advantages for qualifying furnished holiday lets which don't apply to residential or commercial properties. Examples of these are as follows:

Income tax –

Capital allowances are available on the purchase of furniture, fittings and so on.
Profits count as relevant earnings for pension contributions (as opposed to rental income from residential and commercial properties which does not).

Capital Gains Tax –

Entrepreneurs relief may potentially qualify for the reduced capital gains tax rate of 10 per cent in respect of gains made on the disposal of furnished holiday lets.
Business asset rollover relief.
Relief for gifts of business assets.

Inheritance Tax –

The property may also qualify for IHT reliefs, but this is subject to much scrutiny following the recent Pawson case.

Under current legislation the qualifying conditions for furnished holiday lets are:

Property is located in the UK or European Economic Area
Furnished, that is, have sufficient furniture for normal occupation
Let commercially, that is, you intend to make a profit

It must meet the occupancy conditions. These are, firstly, pattern of occupation – if the property is let out continuously to the same occupants (longer-term occupation) for more than 31 days then these will not count towards the total occupancy test, and, if the total number of longer-term occupancy days exceeds 155 days then the property will not qualify as an furnished holiday let.

Secondly, availability – it must be available to the public for at least 210 days; and thirdly, letting – the accommodation must be actually let to the public for at least 105 days

Averaging election – where an owner has a number of properties that are let as furnished holiday lets then each of them must separately reach the availability threshold and the pattern of occupation condition.

However, if some are individually let for fewer than 105 days, an election can be made to apply the letting condition to the average rate of occupancy.

* David Whitfield, Whittingham Riddell LLP, Shrewsbury